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Voice Of The Crew - Since 2002

Los Angeles, California

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Freelance Finance

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I’m going to be honest here. Setting up a personal budget and sticking to it is a critical, if not terribly fun, part of the financial planning process. With the uncertainty inherent in the life a freelancer however, accurately determining your income and expenses, can provide some modicum of stability in an unstable business.The Un-fun Part: Calculating IncomeFor the freelancer, estimating income can be challenging due to its potentially variable nature from month to month. For our freelance clients, determining what income number to use becomes part science and part judgment. To start, we take our client’s earnings over the past two years and divide by 24 to come up with an average monthly income. From that we make adjustments based on how well the client feels that last two years reflect reality and what they are realistically expecting in the future. This number should be reviewed periodically to ensure that it remains realistic.Tracking ExpensesThe biggest problem most people have when calculating their expenses is that they tend to underestimate the amount they actually spend each month, particularly on discretionary items. We can capture the bulk of the expense information we need from three sources: bank statements, credit card statements and tax returns. From these three we can determine the cost of utilities, rent or mortgage, insurance premiums, taxes paid and expenditures for groceries, dry cleaning, etc. Unfortunately, most discretionary items (Starbucks coffee for instance) are paid in cash, which is more difficult to track. Ever taken money out of the ATM and a week later asked yourself “Where did it all go”? Our method of tracking these expenses is decidedly low-tech. Our clients carry with them a small reporter’s pad and write down each cash expenditure they make for a month. Since most people spend their cash in similar patterns each month, this gives us a fairly accurate of where your cash is going. After having gone through the process accurately tracking their expenses, many people are shocked at where they find they’ve been spending their hard-earned cash.The Fun PartAfter completing the sometimes tedious steps of estimating income and tracking your expenses, now the fun part begins. With the new-found knowledge of where your money is going, you can now adjust your spending habits to reflect what’s really important about money to you. Once you are more aware of your spending, you’ll find yourself making conscious decisions about your spending and asking yourself things like, “Dinner out at a nice restaurant for the third time this month, or put $100 toward my home down-payment fund?” You may choose the dinner or you may not, but the end result is that you’ve at least made a conscious decision to spend that money in a way that brings you the most satisfaction.

Written by Rob Jupille

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