Deciding how much to charge is already a hard task but the real ordeal comes up once you’re building a constant stream of income from your freelancing.
You start to find answers to questions like:
How much should you earn this month?
What are your overhead expenses?
What percentage of your income should go to savings?
People who have been freelancing for quite a long time now had this all figured out. But if you’re just a newbie, the financial aspect of freelancing may leave you completely clueless.
Here are a few tips that will help you calculate how much money you should make in a month to cover all your expenses and have something to set aside for your savings:
Just like any other business, you need to define your costs (overhead expenses). Remember, you’re not a regular employee here. You’re running your own freelance business and that means you will be the one to set your financial goals.
If you have no idea of the amount that you should make in a month, try to list down first the things where your money will go.
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These are the common work-related expenses that you need to take into account:
Paid tools or apps you need to buy in order to do the job
Co-working space rent (for days you want to work outside your home office)
Once you’ve listed down your expenses and their average cost per month, it will be easier to figure out how many projects you need to take to cover those expenses. Keep in mind that your work-related costs should be no more than 30% of your monthly income.
When deciding how many projects to take and how much to charge for them, next thing to determine is your profit goals.
Related Article: How to Earn Money at Freelancer.com
After calculating the costs involved in your freelancing endeavor, you need to list down your personal or living expenses. What percentage of your income will go to your personal needs such as food, rent, and bills? How much are you willing to allocate for your wants like shopping, travel, or Netflix subscription?
Your personal expenses shouldn’t be more than 50% of your monthly income. Calculating this will give you a clearer view of your monthly target earnings.
Related Article: 4 Ways to Save Money and Pay Less Tax for Freelancers in 2016
Rainy day fund
After estimating your spendings (needs + wants) set aside 20% of your income to your savings.
Some months, you may not be able to meet the profit goal so set an annual target income. It could be challenging but it's also fun to find different ways to optimize your income. Once you've determined how much to pay yourself and how much will go to your expenses, that year-end savings goal will be a sweet motivation.
What to do now? Stop wasting time and go out hunting for more projects so you can grow your fund faster than you can imagine.