Practical Budgeting For Freelancers and Entrepreneurs

The following is an excerpt from “Art & Numbers: A Financial Guide for Artists, Writers, Performers, and Other Members of the Creative Class.” We also picked Elaine’s brain on money management for the creative class. Check out that Q&A here.

Budgeting plays a supporting role to something much more exciting. It makes your craft better—be it art, performance, technology, law, or accounting—not in the artistic sense, but in a way that sustains your practice. Having good financial health (just like having good physical and mental health) provides you with peace of mind. Peace of mind then leads to productivity and creativity. Ergo, budgeting leads to creativity.

There’s no magical formula to budgeting, there’s not a secret budgeting class that finance majors ace, and there’s no global conspiracy to keep financial success away from creative people. Budgets can be long or short, complex or simple. There’s no wrong budget, and (short of not budgeting at all) there’s no wrong way to do it. So get started already.

Budgeting Basics

Budgeting used to be a dirty word—a gauche, déclassé word that successful entrepreneurs didn’t dare utter. It implied being cheap or reducing cost and quality, so the understanding was that those who had truly “made it” had no need to budget. In modern times, the reverse is true. Thomas Stanley and William Danko popularized the notion of “the millionaire next door” in their 1996 book of the same name. They found that the wealthy among us budget fastidiously and live below their means.

Here’s an updated definition of budgeting: to plan to operate within available means, regardless of the number of zeros included in those means. A budget is the slightly larger version of quantifying financial goals. It captures not just each individual goal but also each individual goal’s financial implications. At its simplest, a budget is a list of expenses for a project or a period and an estimated amount of each item. That’s it. It isn’t a wish list of things (although it can include the savings needed to fulfill that wish list), and it isn’t a delusional exercise in optimism (in which, say, a blogger plans to be paid $1 per word for her compositions and musings).

The next layer added to a budget is the income section, which is essentially a list of jobs for the same project or period and estimates of the earnings from each. The list should include the starring role, supporting cast roles, and production assistance jobs. Obtain income estimates by talking to peers about prevailing rates, recalling past experiences about fees, and perusing job postings or websites that aggregate salary information.

Actual results are different from the budgeted amount because it is impossible to make exact predictions about the future. A budget is filled with educated guesses about expenses that may occur (e.g., rent, groceries, computer repairs) and income that may come through (e.g., payment for freelance or contract gigs, advertising revenue from blog posts or a website, a book deal advance). Building in a contingency to the expense side of the budget is also advisable to cover miscellaneous needs, such as a replacement computer or iPad, new software program, or course to expand your credentials. If your phone is lost or stolen, for example, you’re going to need a new one immediately. Period. Not having connectivity is not an option, at least not if you plan to continue running your business. Planning for contingency ensures that you can pay for necessary items without delay or without using a credit card. Things will not always sort themselves out eventually, so budget appropriately.

Reprinted with permission from “Arts & Numbers: A Financial Guide for Artists, Writers, Performers, and Other Members of the Creative Class,” by Elaine Grogan Luttrull, Agate B2, May 2013.

For budget examples and worksheets you can use, click here.

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