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!