Making a living
Budgeting without a salary
On Your Own: A Guide to Freelance Journalism
> Home
> Introduction: The freelance side of life
Freelance journalism 101
> Dressing for success as a freelancer
> Staying productive even when youre not working
Business matters
> Five reasons to pay attention to business
> Contracts and copyright beyond the basics
> Getting your business organized
> Separating yourself from your business
> Insurance considerations for freelance journalists
Making a living
> A simple way to boost your pay: Ask
> Retirement planning: Where to stash your cash?
Finding work
> Inspiration for finding the story
> Brainstorming ideas you can sell
> Pitching your way to a full story calendar
> Tips on freelancing for newspapers
Marketing yourself
> Paying attention to business
> Making a home for your business on the web
> Networking: the key to staying happy and fed
> Business cards help make the best first impression
Tools of the trade
> Why journalism ethics matter
> Four tips for better self-editing
> Selected websites for finding freelance journalism assignments
Budgets challenge salaried people who know exactly how much and how often theyll be paid. How on earth do you manage your money if you cant predict how much will be coming in and when itll arrive? Here are some tips.
Review the past two years of monthly income. If you have been keeping track of income and expenses, as recommended in the Keeping Track section, this will be easy for you. If youre just getting started, you can base your revenue estimates on bank statements. If youre pressed for time, glance at your last two annual tax returns and divide each years income by 12. Use the lowest monthly income amount in the next step.
Keep monthly fixed costs 20 percent lower than the least amount earned in any given month. By keeping your cost of living lower than the smallest monthly amount youve earned in the past two years, you reduce the chance that you wont earn enough each month to cover basic bills, especially since some clients take longer than others to put a check in the mail.
Fixed costs may include the business portion of your phone, Internet and website hosting bills; monthly subscription fees and 1/12th of annual dues and subscription fees; office rental and utilities, or 1/12th of the previous years home office deduction (if you took one); rental expenses for your mail drop and/or storage space, if any; and loan payments.
Save at least 20 percent of every paycheck for taxes. The Social Security and Medicare tax rates for self-employed workers total 15.3 percent of the first $117,000 of income in 2014. Although you get to deduct half of the Social Security and Medicare taxes in calculating adjusted gross income, youll also have to pay state and federal income taxes on your business profits, so 20 percent is a good number to start from.
If your freelance business is your primary means of support, 20 percent may not be enough to set aside for taxes. The federal government taxes the first $9,000 of an individuals income at 10 percent and gradually increases the rate to 39.6 percent. Unless you have a lot of business expenses, your effective tax rate is likely to be above 10 percent.
If you freelance to supplement other family income and your expenses usually arent more than your business income, you might want to set aside an even higher portion of each paycheck so youll have enough to cover income taxes at your marginal rate.
Make savings automatic. Figure out what dollar amount constitutes 20 percent (or a higher percentage) of your lowest monthly income. Then, go to your banks website and set up an automatic monthly transfer of that amount into your savings or money market account.
Build an emergency fund. This is a fund you vow never to touch until trouble arises (you lose a major client, your furnace dies, etc.). People with full-time jobs should have an emergency fund that covers three to six months of expenses. Some people recommend that a freelancer have an emergency fund that represents one year of living expenses. If you dont have an adequate emergency fund, this formula is worth using: Save 20 percent of your extra monthly income for taxes, 40 percent for your emergency fund and 40 percent in a retirement account.
If your emergency fund is adequate, maintain that same 20:40:40 savings formula, but now devote that fund toward saving for a special purchase, such as a car, wedding, vacation or down payment on a home. Other uses for the other 40 percent include starting a 529 account for childrens education, making an extra mortgage payment or adding to retirement savings.
You can keep it simple by slotting certain clients into certain bills: Checks for a weekly freelance newspaper column go into the retirement account; payments for articles for a food and dining magazine go into vacation savings; income from speaking gigs goes into the taxes account.
Freelancers who maintain a steady stream of regular clients find this is an easy mental exercise. If your work is more varied, youll have to rely on old-fashioned percentages.
Contributors: Paula Pant, Hazel Becker
Last updated: January 2015
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