Use a Freelance Paycheck Template to Pay Yourself Regularly
One of the downfalls of freelancing is not having a regular paycheck. But why does that have to be a downfall? With a little bit of work (and time), you could develop a regular freelance paycheck. I’m going to share with you how I am giving myself a regular paycheck, and as a bonus, I am going to give away my freelance paycheck template that I use to manage it! Download the Excel workbook to follow along with the article.
Create A Regular Paycheck Fund
Every client check I receive gets split up many different ways: taxes, savings, personal commission, personal savings, etc. One of the splits I do is to a regular paycheck/backup fund (see worksheet titled “Splitting Checks”). It all goes into my savings with other things, but I keep track of it separately with a nice Excel spreadsheet (see worksheet titled “Regular Paycheck Fund”). My idea behind this fund when I first started freelancing was to give myself a regular paycheck. I needed the security of a regular paycheck without being employed somewhere.
I took a percentage of my paycheck after taxes and put it into this little fund (see worksheet titled “Splitting Checks” to see the split, and worksheet titled “Regular Paycheck Fund” to see the deposit into the fund). When I first started freelancing, I set things up to pay myself a “personal commission”—a certain percentage of my after-tax income—that I would pay myself whenever I cashed a client check (in the Excel example, I have 70%). This helped me get by while I was building this regular paycheck fund.
The amount you put into your regular paycheck fund should be adequate and representative of your plans. If you want to have a regular paycheck this time next year, then you should put back more of a percentage each client check than if you want to start this in two years. Same with any length of time you choose. Ideally, you will want to move to the next step (below) when you have about 3-6 months of living expenses and bills in this fund.
Set Up A Minimum & Maximum
After a year and a half of putting a percentage in this fund (this time will differ depending on your circumstances which I will discuss below), I set up minimum and maximum “personal commission” limits per month (see worksheet titled “Monthly Min-Max Record”). Confused? Let me help you.
To make the math easy, let’s say I decided that I needed a minimum of $100 a month to pay bills and live off of (we’ll keep the numbers round and low to make it easy–if it helps for you, add a zero!) and decided that for now I can afford to have a maximum personal commission of $300 per month.
January comes to a close and according to my Excel spreadsheet, I made $210.00 in personal commissions. This is in between my limits, so I don’t have to take out any money or put in any money into my regular paycheck fund because I made too much or too little.
February is in the books and it was a really good month, so I made $525.00 in personal commissions. This is over my maximum limit of $300.00 (see worksheet titled “Monthly Min-Max Record, cells C5-C7). So the remainder of $225.00 (cell C7 of same sheet) would need to go to the regular paycheck fund, as you can see on the worksheet “Regular Paycheck Fund” cell D8.
March wasn’t a very good month, so I only made $52.50 personal commissions. This is $47.50 shy of my minimum I need to make, so I would need to debit that amount from my regular paycheck fund (see cell C11 of “Regular Paycheck Fund” worksheet).
Why set up a minimum/maximum system? Because you have to take baby steps. You don’t want to jolt your cash flow so much that you will have to revert back to living from client check to client check. This system will help you even out the cash flow from client check to client check to having a regular paycheck.
But Amber, that isn’t a regular paycheck!
I know, but after a certain period of time doing the minimum/maximum system, you can do one of two things. Either tweak those limits to be closer to the amount you want to pay yourself a month or go straight into paying yourself a regular paycheck. The fund you created will help you adjust to these changes. If you put an appropriate amount back each client check, this fund should have about 3-6 months worth of personal commissions ready for when you make that final jump into having a steady paycheck.
Remember to still be putting that certain amount in your regular backup fund from each client check (see worksheet “Regular Paycheck Fund” at the Example Client deposits). If you don’t, this fund could dry up and leave you without a safety net for when your freelancing is slow. However, you may feel that this fund is growing too fast or too little and may decide to change this amount once you move to the min/max system.
Grow Over Time
How long will this take? This will greatly depend on how much you make as a freelancer, what your minimum and maximum should be, and how fast you are able to develop your regular paycheck fund. For me, it took a year and a half to get to the point of the minimum/maximum system. That system is still in place and has been for seven months. However, come January I will evaluate how flush that fund is, how much I made this year, and how much I project to make next year. Depending on how I feel about my freelancing situation, I will either tweak the min/max system, or move right on into the regular paycheck.
Once you start paying yourself a regular paycheck, your regular paycheck fund (which should still be growing, because remember you are still putting a certain amount in there every client check) will be your freelance income safety net. As long as that fund is consistently growing every month, then you have created a regular paycheck for yourself every month, and you can adjust that amount how you see fit.
Make Necessary Tweaks
There is no way you can get this system perfect the first time you set out to put numbers to it. So don’t be afraid to make tweaks as needed. Many of the tweaks I have made are the amount of the personal commission I paid myself, the minimum/maximum limits, and how much I put into my backup fund.
One thing to keep in mind is that your regular paycheck fund should still be growing every month. It’s ok if it doesn’t grow for a month, but the trend needs to be that at least every quarter there is more money in there than the last quarter. Why? So that you have a nice safety net for dry spells, and you can give yourself a regular raise.
Once you have a nice 6-month supply of funds in that account, go ahead and give yourself a nice raise for all of your hard work in successfully developing a regular paycheck while being a freelancer!
Leave a Comment
Wow! This is clever. I should start doing it with myself. Thanks for sharing!
My wife and I sat down trying to figure this all out before I saw your post and we just got frustrated and decided to just let the funds pile up until we could figure out what to do. Today I see your post, and the missing key was the floating backup account.
Thanks for the great tip! However, I’m looking at this spreadsheet and the percentages don’t add up to 100%?
Minus Taxes – $25%
Personal Commission – 70%
Out of personal commission – 15% backup fund
My next questions are, obviously business expenses like payroll come from the 55% that’s left from the personal commission right? Is it the same pulling from the main clients check?
Thanks!
Hey there,
The percentages won’t add up because you will have other things I am sure that you will want to put money back for, such as retirement or vacation time possibly AND you are doing the percentages in stages.
Lets say you get $100 from a client. You take 25% (or whatever for taxes) out. That leaves you with $75.
THEN from the $75 you take out your personal commission of 70% (or whatever you want) from the $75. Leaving you with $52.50 (the rest–$22.50–would stay with your freelancing business).
THEN from the $52.50 you would take out your backup fund of 15% (or whatever you want), meaning you would put $7.88 in the backup fund. The rest of the 85% from the $52.50 can go to a general savings, retirement, etc.
As for payroll and other expenses, that would be taken out of what is left AFTER your personal commission. Meaning, after the $52.50, you have $22.50 for your business. This is where business expenses such as payroll, advertising, etc would come from. Knowing that, you should adjust all of these percentages to fit your situation. For instance, I don’t pay close to 25% of my taxes to the IRS, it is closer to 18% because of my unique situation. Also my business expenses are really low, so I could afford to pay myself more of a personal commission (more around 85%).
I hope that makes sense, if not post back and I will help clear it up!
Nice article But i can manage without regular paycheck
Hi Amber, it sounds like a good working solution however personally I try to stay away from complex systems like that.
Just like you I always wanted a security of a regular paycheck and my solution was to make sure that I have enough in my sales pipeline to achieve that. Of course that meant acting more like a company than a freelancer, with all sales and so on, individual clients rather than working in agencies etc. but it worked well.
I agree that ideally you will want to achieve enough sales and such to pay yourself a regular paycheck without the use of the system I described above. However, for some freelancers it takes years to do so. It is very rare that on the first day of opening your business you will have enough sales to support yourself. It takes time. This is that in between stage, for when sales are like a roller coaster.
Hi Amber, yeah I figured that out.
Well, as I said, your system makes sense. Back it up with good sales technique and hard work on growing the business and you have a winning combo.
Good system anyways Amber.
Hi Amber,
thx for such an great article! It needs certainly much discipline to hold on that min/max system. What would be interesting to add is a percentage to build up a retirement fund for the good old days !
greetz from Germany
Timoslav
This is completely possible to do. You can put anything back for anything you want with this system. Once you have your personal commission amount, you can divide that up for other things, which if you use this example will include your backup fund, and in addition include a retirement fund, general savings, vacation fund, a new house fund, a toys fund, whatever you see fit and can afford to do! I personally split mine up five ways–general savings, college fund (to continue paying for my education), “future” fund (for buying a house, getting married, etc), backup fund (as described above), and Christmas/gifts fund (to pay for Christmas time or expensive gifts for special occasions).
Interesting system, Amber. I was lucky when I first started to have one major recurring client that paid me each month. I lived off of that and used the income from my other clients to build up the balance of my “business checking” account (it’s technically a personal account, according to the bank, but I keep it completely separate). Now, I pay myself regularly (and on the same day) regardless of the dates the client checks go in or the amounts.
I budgeted to pay myself the bare minimum, worst-case scenario I expect to make each month and my plan has been to give myself “bonuses” (every quarter? twice a year? every year?). I like the idea of having a minimum and maximum range though. It would give me a more immediate rewarding for doing well in business which might even stimulate me to keep up the hard work!
Thanks for sharing your system with us.
Hi Amber, thanks for the interesting article but somehow I cant see the need for such artificial method to know you are getting a monthly paycheck..I might be missing your point here but my monthly goal is to achieve a minimum amount of sales and I track my income that way, its simpler and make more sense dont you think? Sorry like I said I might be missing some points on your method and I thank you for sharing..cheers
You would think it would be easier to make sales, but for me if I can’t make a certain amount of sales (which can occur and has sometimes while I am in school and haven’t spent adequate time marketing myself and the pipeline runs dry for a bit). This is a system for those who may be struggling with sales, or have another unique situation.
This provides me with more control over how much I pay myself, and gives me a safety net. I am very much a math person, and I love knowing exactly what I have for what.
Wow, I got lost halfway through but for those who can manage themselves (and their money) strictly enough Im sure this can work out really well.
What did you get lost on? I would be more than happy to explain it more. I know it is a very in-depth article and system, so I understand if it is a bit confusing. Let me know what I can help explain better!! You can also read some of my comments above too to see if that may help as well!
Nice post. Thanks for sharing your thoughts.
I follow another strategy though. For each month I try to earn the minimum amount for living (it includes taxes, bills). Then I go for savings, a certain amount. After that amount is achieved and I still have time, I go for travel fund.
Thanks, Amber! Really great article, useful tips and experiences in it.
Always a pleasure to read articles you’ve written.
It is nice to have a fan in the crowd Patrik!
Hi Amber,
thank you for sharing your metodologies.
I have to adapt it to my needs but the way you’ve showed to manage the paycheck can be a guideline for me (and for other also, i think).
Seems like allot of extra work for the same amount of money. I’d rather spend more time on creating more income vs keeping track of a complicated payment program for paying myself.
Amber, thank you for this spreadsheet! I need to set something up so I’m more disciplined with my funds (already am, but I need a system to divide them as you have).
Very wonderful idea. Thank you so much for sharing. I am sure this is something I can do to help balance my highs and lows so my finances won’t always be in a mess.
hi amber, thx for your sharing, i’m really confused to manage my project, especially for my finance system.. dont know where should i start
Hi! You have no idea how happy I was to see this. I recently started a cleaning business and have created so many spreadsheets (estimate workbooks per client, business running balances, etc.) that I could not find my way back to getting to the most important one- my personal finance! THANK YOU! I was actually looking for something else entirely.
Do you happen to know what would be considered appropriate gifts for cleaning clients? If not, never mind and thanks for the template. You rock on skis!
no free template, just advice on paying myself?
should I eat during the day as well?
you could entitle that advice “eat free food”
What??