How do you create a budget when your freelance income isn’t steady? Can you mark up project-related expenses without feeling guilty? In this episode I answer these and other money-related questions submitted by readers and listeners.


Our first question comes from Brian via LinkedIn.
He wrote:
 Hi Alvalyn,   Your post – – well, it opened my eye. Question for you.    In your example of quoting the total printing fee (cost + markup) , how do you “hide” the markup on your invoice since the printer’s invoice is attached?    Or, do you simply cover it in the Agreement, e.g. “We apply a 20% markup to project expenses?”
Thanks for your question, Brian. I don’t separate the mark-up to the client when estimating or billing. I “ hide” the mark-up as single amount that includes the cost plus the mark-up. For example: The printer invoice is $5,000.00. If I apply an 18% mark-up, the total I show on my bill to my client for the printing cost is $5,900.00. The mark-up amount isn’t a separate line item. I don’t include my printer’s invoice; the client never sees that. Marking up is ordinary practice in business, for any business that wants to make a profit. To say “We mark up.” is stating the obvious. If you think about it, does your printer provide you with a single total on their invoice, or do they itemize their paper, ink, utilities costs, payroll costs, custodial costs, equipment purchase and maintenance costs, trade printing , binding, and profit percentage? No. They might separate shipping costs from the printing cost, but the printing is billed as a single amount that combines their costs plus profit (mark-up). Be assured they’re marking up their costs to you. Remember: price = cost of materials + time + profit.  Was this helpful? This is provided for information and education only and not as professional advice.

A Tax Question

Aaron asked:  Can I file jointly with my husband or do I have to file a separate tax return if I’m self-employed?
You file jointly on a 1040. On that 1040 form, on line 12 of the INCOME section, you’re going to put your profit/loss from your business. You figure that out on your Schedule C — profit or loss from business or profession. On the Schedule C you’ll include your business name, type of business, address, and list income and expenses. If you have 1099 (independent contractor) income, that’s shown on your Schedule C. If you’re selling product, that income is shown on the Schedule C. The total profit or loss on your Schedule C is transferred to your 1040. If you own more than one business, create separate Schedule Cs for each business. All that Schedule C income is totaled on your 1040.
So on that 1040 you’re filing jointly with your husband.
You don’t need to file separately, and you don’t need to file a separate income tax return unless your business is a corporation. If you’ve set up an LLC or a sole-proprietorship, you file as an individual and simply complete the Schedule C, which supports the 1040.
To pay estimated quarterly taxes so you don’t get hit with a huge obligation on April 15, use the 1040-ES, go online to
Hope that makes sense.
I’m not a CPA or tax pro and I’m not giving you legal or financial advice. I’m sharing information to hopefully lessen your stress. Be sure to confer with a tax pro or CPA who works with the self-employed to confirm this info.

Minimum Engagement

Lynda asks: Have you ever charged a minimum rate? At times clients will reach out and they’ll need something quick and simple and we aren’t in a retainer type relationship, so I have to bill hourly… I am wondering if anyone implements a minimum for that kind of thing? How do you invoice for small jobs? any suggestions or what do you do?

It sounds like you’re asking if you should have a minimum engagement.
First let me say that you’re rate should be your rate if you’re charging hourly. It hourly is your pricing model, then determine what that’s going to be and make it your rate for everything.
If you don’t know how to figure out an hourly rate, I walk you thorugh it it in the FRT training, but the short version is, figure out how much you need to make in a year to support your business and your life if you’re full time, or how much you want to make if you’re part time. Look at your business and living expenses, savings, investments, taxes, basically everything. Then determine how many hours in a week you want to work and multiply that by 50. That assumes the 52 weeks in a year, but two of those are time off. If you take more time off, calculate that. So say you want to work 48 week out of the year and you’re working 32 hours each week, assuming 8-hour days and a 4-day work week. That comes to 1536 working hours.  If you need 6,000/month to support your life and business, that’s 72000/year.    Divide 72000 x 1536 to figure what your hourly should be.  So that total is 46.88 rounded up, so round that up to 50 and that you’re hourly rate.
So now that you know what you need to charge if you’re pricing by the hour, then you need to figure what your minimum engagement is.
Will it be a half-day, which, if you charge 50/hour would be 200?
Then you should consider the quality of client who’s going to be looking for a quick turnaround like that. OR cheap.
So Lynda, there’s most likely a value that you assign to your time on a project. If something takes you only 15 minutes to accomplish, and your rate is 50, will you bill the client for 12.50?  What amount of time did it take you to write up and send the invoice?
A best practice is to determine your minimum engagement and apply it to everything that fits, whether you’re spending 35 minutes 115 minutes.
I have a minimum engagement, but it’s not hourly. Its simply what I’ve determined through experience to be a solid minimum for any project.  What’s the least amount I’m willing to accept a project for?
Also, having a minimum engagement is a filter. Once people with what I call bit work find out what my minimum is, they go elsewhere. That’s fine. I don’t want to do bit work because I’d rather spend time and creative energy on significant projects that will have a greater impact.
As for invoicing for small jobs, follow your same process  as for larger projects.
One other thing to consider, when I was doing those small jobs, those were the ones where the client disappeared without paying me.
By establishing a minimum engagement and requiring the full amount up front, it filters the undesirable client.
Always do what’s best for your business.
Thanks for the questions, Lynda

How to budget on unsteady income

The last question comes from Jennifer: I’m just starting to freelance. What are some tips for managing money? Do I need a budget?

The best way to handle money is to manage it, and using a budget is the best way to know where your money’s coming from and where it’s going.
A budget is basically a spending plan. Many freelancers have problems with the idea of budgeting because they see it as restrictinve or they don’t think they can work with a budget when their income isn’t consistent month to month.
I didn’t always budget, and truthfully, am still not as consistent with budgeting as I need to be. My income flucturates just as yours does.
But I’ve learned a few things.
  1. Budgets actually give you permission to spend money.
  2. It’s very possible and preferable to work with a budget on a fluctuating income.
I got serious about budgeting just a few years ago when I decided to get out of debt. Budgeting is helpful to keep you from going into debt and it’s a vital tool to when you’re working to get out of debt.
As a freelancer with inconsistent income, you need to approach budgeting creatively. The way I do is to revise my budget every month ahead of the month, and base the budget on what I know I brought in in the current month. I wet up a spreadsheet in Numbers, because for me it’s more flexible than Freshbooks or Quickbooks. I look at what I’ve earned in the current month that I know I have coming in, and budget for the upcoming month based on that income. Then next month I create a budget for the following month, based on next month’s income.
Budgeting this way helps me closely tract income and expenses. It’s worked well for me, and I have drastically reduced my debt. I’ll pay off my car loan this year, and then I’ll just have the mortgage payment. That’s going to be a huge deal when I get the car paid off. I don’t believe I’d have been able to crush my debt if I didn’t have a budget.
So yes, long story short, you need to use a budget when you’re freelancing.