Budgeting on irregular freelance income: the baseline-pay method
A normal monthly budget assumes the same amount arrives every month. Freelance income doesn't, so budget against a number you choose, not the number that happened to arrive.
The idea
All client money goes into one business account. Once a month you pay yourself a fixed baseline from it, and your personal budget runs off that baseline only. Good months build up the business account; thin months draw it down. Your personal spending stays steady while the income wobbles.
Setting the baseline
You need a conservative figure you can pay yourself in most months. Three ways to get one from your own data (monthly net profit in B5:M5 on a P&L, after any amount you set aside for taxes):
Cautious =MIN(B5:M5) ' your worst month this year
Middle =MEDIAN(B5:M5) ' half your months were above this
Smoothed =AVERAGE(B5:M5) * 0.8 ' average, minus a margin you chooseThe 0.8 is a placeholder: pick your own margin. A lower baseline is safer but leaves more in the business account; a higher one is more comfortable now and riskier later.
The three-line tracker
- Business account balance at month start.
- Net profit this month (from the P&L) added, and the baseline you paid yourself taken out.
- New balance = start + profit − baseline.
The same three lines, copied across twelve months, are the core of the cash-flow forecast. If the new balance trends down for several months, your baseline is higher than your business can support; if it keeps rising, you can raise the baseline.
Review rule
Revisit the baseline once a quarter, not every month. Changing it after every good or bad month defeats the point, which is to stop your own spending from tracking your income.
More freelancer finance guides
- Excel or Google Sheets for freelancer finances? What actually differs
- Freelance expense categories for a spreadsheet: a starter list that stays short
- How to build a freelance income and expense tracker in a spreadsheet
- A simple 12-month cash flow forecast for freelancers
- Freelancer profit and loss (P&L) in a spreadsheet: a one-page layout
- Freelancer runway: three spreadsheet formulas for how long your cash lasts
- Freelancer tax set-aside: what goes into the number, and how to track it
- Invoice tracker spreadsheet: formulas for paid, due and overdue
- How to track freelance income by client in a spreadsheet
Already built
The Freelancer Finance Spreadsheet Kit includes the monthly P&L that supplies the profit line, and a 12-month cash forecast with opening and closing balances. One Excel file, $29.
Free: the Tax Set-Aside tab as a standalone Excel file
One working tab: type your quarterly income, expenses and the rate you choose, and it shows what is still to put aside. Confirm your email and the file arrives right away, plus an occasional note (at most one a week) on tracking freelance money. Unsubscribe in one click. Privacy.
General information about using spreadsheets, not financial, tax or accounting advice. A baseline is a personal planning choice, not a recommendation of how much you should pay yourself.