Ask Money

Uncertain freelance income

Chris Farrell Dec 28, 2009

Question: I freelance as a stage manager for theatre and my year usually pans out where I have work for two months, then am unemployed for two months on and off for the whole year. I want to save for those in between times, but also want to have emergency savings and retirement savings aside from that. How should I budget how much I take out every paycheck to make sure I have enough to live between jobs, add to my savings, add to my retirement, but also have enough to live on? My average weekly income before taxes is $550 to $600. Thanks! Verhanika, Seattle, WA

Answer: The money management problem you face is common with freelancers and other entrepreneurs. There is no way getting around some tough money trade-offs. And it’s also a classic case where the financial basics really do matter.

I know we have a lot of readers and listeners that make a living as freelancers. Do you have any suggestions for Verhanika? What money management system works for you, and why?

Here are some suggestions. You’ve probably done this but just in case–you need to have a budget. It’s hard enough for people with a steady paycheck to establish a budget. But freelancers like you have an uncertain, unpredictable income. That said, there is no shortage of budget templates online or in the book store. I’m a fan of online programs like that make it easier than ever to set up and monitor a budget. You might pick up some budgeting ideas from articles at websites like and, too.

A common technique among freelancers is to smooth out their income. It makes planning easier to pay themselves a “salary” throughout the year. They accomplish this by setting aside a certain amount from every paycheck and putting it into savings (preferably a high yielding online savings account). They then draw out a set amount–their salary– from savings during fallow periods. Similarly, if you get an unexpected bonus payment or any other chunk of money you would put the bulk of it into savings.

This way you can start playing with the numbers from a budget template. For instance, at this stage of life you may only be able to put a sliver into a retirement savings plan. You might want to put more into emergency savings. Retirement savings might become the focus of your savings efforts at a later and different stage of your professional life.

We all should be tax smart with our money, but that goes double for freelancers. You’ll want to both establish a system for setting aside some money for what you might owe come April 15th (yes, pay those estimated taxes). At the same time, you want to be smart about your business expenses to keep the tax bill down and cash flow up.

For your retirement savings a simple, low cost way is to set up a SEP-IRA. Fees are minimal with a SEP. You can contribute to it when you can. There’s no penalty if you can’t add to it. You get a tax break on your contributions.

Another thought that may or may not work for you. Several years ago I interviewed a couple and they both freelanced. The husband was a graphic designer and he typically had projects that absorbed a lot of his time for several weeks and then he had nothing for a month or so. He smoothed out their income by developing a relationship with a temp agency that specialized in his field of work. The jobs he got were less profitable than his own work, but the temp agency was a critical part of his family’s financial safety net.

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