How To Calculate Your Monthly Income As A Freelancer

Freelancing is an excellent way to make money, but seasonal dips in market activity can make the stability of conventional, salaried employment far more appealing.

This is especially true if you aren’t prepared. Those who succeed as freelancers are ready for the challenges of having an income that fluctuates. Their secret? Knowing what to expect and having strategies for mitigating periods of low earnings.

By calculating your average monthly income and establishing a reasonable budget, you can avoid dramatic changes in both your financial health and your life-quality throughout the year.

Here is everything you need to know about how to calculate your monthly income as a freelancer.

How To Calculate Your Monthly Income As A Freelancer

Your Best Month Isn’t Guaranteed To Repeat Itself

If you have a banner month that includes multiple high-value transactions, you might think that every month that follows it will look the same. This is an easy and all-too-common mistake. It’s also one with potentially disastrous consequences. Having a stellar first month as a freelancer causes some people to quit their day jobs before they’re ready to do so, and before they’ve had the opportunity to assess and understand the cyclic or seasonal nature of their industries.

Never set your best month as the standard for your earnings. With this in mind, you can’t know your monthly income after just one to two months of freelancing. The longer that you’re in operation, the easier it will be to gain an accurate picture of how things change over time.

Factors That Affect Your Profitability As A Freelancer

There are countless factors that affect the profitability of freelancers. However, they can all be broken down into two distinct categories: factors that you can control and factors that you cannot.

Whether you write content for others, build websites, create quality graphics, or sell physical or digital products, you have to account for market fluctuations. Other factors that might affect your business that lie outside of your control are:

  • Supply chain issues
  • Seasonal dips in demand
  • Rising costs of essential materials or equipment
  • Your health

Although your health might be a confusing addition to this list, you have to remember that you are the sole source of manpower driving your freelancing operations. Coming down with a cold or the stomach flu could bring your business to a grinding halt overnight. With no one offering sick pay or any other form of paid leave, all of your illnesses will likely count as profit loss. The only time when this is untrue is when freelancers manage to establish passive income.

You can certainly mitigate these and other challenges by having a plan for each such as:

  • Building a large network of suppliers and pursuing alternate materials as needed
  • Offering seasonal discounts to incite buyer motivation during times of seasonally low demand
  • Joining membership groups with suppliers to qualify for loyalty discounts
  • Taking good care of yourself or bringing on a partner to ensure continuity during times of illness

However, in general, these are factors that lie outside of your control. They entail changes that affect your operations and the profitability of your freelance endeavors in ways that cannot always be predicted or avoided.

How much you’re able to earn each month as a freelancer is also determined by:

  • How often and how long you’re willing to work
  • How you set your prices
  • How well you manage your overhead costs

These are factors that you can control. Taking the time to list all of the things that impact your profitability and then determining how well you can manage or control these factors is an important part of creating an income plan. The more research that you do and the more data you collect, the easier it will be to optimize your profitability throughout the year. Taking advantage of money management tips is a great way to offset the factors that you cannot control and to limit the effects of factors that you can.

Start By Separating Your Personal Finances From Your Business Finances

Before you attempt to calculate your earnings as a freelancer, separate your personal finances from your business finances. If you get paid through a digital wallet, establish a personal account for all personal transactions and a business account for everything related to your freelancing. Set up a commercial banking account as well.

Doing so will make it easier to see where your money is going, how much cash you’re putting into your business, and what your true income is. For instance, if you complete a $200 sale but have paid $60 in marketing, materials, and fulfillment to make this transaction happen, your true income will be $140. Transferring $140 in pure profits to your personal account will make it easier to gauge what you’re actually bringing in.

If you work for a ride-hailing app or a grocery delivery app, you want to keep your earnings separate from your spending on gas, your vehicle maintenance fees, and other essential expenses that impact your bottom line but don’t directly improve your life-quality. Graphic designers and online marketing experts should be able to see beyond their software costs, advertising costs, and other spendings to get a clear idea of how much they’re personally making. Keeping your personal finances separate from your business finances will also make it infinitely easier to do your taxes at the end of the year or at the end of each quarter.

Account For Your Overhead Costs

It takes money to make money. Even the Internal Revenue Service (IRS) recognizes this fact which is why freelancers are given a variety of tax credits and write-offs that account for this spending. When calculating your monthly income, you should account for this spending too. Money that you spend to purchase, repair, replace, or maintain essential business equipment should not be counted as income. After all, you cannot spend it to pay your living expenses, and your business can’t keep plugging forward without it.

This is another way in which it pays to keep your personal finances separate from your business finances. Before transferring your “payment/paycheck” into your personal digital wallet or banking account, set aside the requisite cash for:

  • Marketing
  • Inventory
  • Facility rentals
  • Essential equipment
  • Outsourcing

Create a working list of business expenses and their average amounts. Much like your personal income, these expenses should be tracked throughout the year to determine their seasonality and to find ways to keep them in check.

Account For The Expenses That Aren’t Being Paid By An Employer

Next, take stock of the expenses that aren’t being paid for by an employer. Many freelancers earn excellent money but still lack access to quality medical, dental, and vision insurance. Worse still, they aren’t actively planning for their retirement. As a freelancer, you’re entirely responsible for covering these basic needs and for making regular contributions toward your financial future.

To get a clear idea of how much income you’ll have for basic living costs, be sure to deduct your monthly retirement contributions and health/dental/vision premiums. You should additionally remember that you won’t have an employer paying for sick days or vacation days. Unless you have a truly passive source of income as a freelancer, any leave that you take will count as lost profits. In this case, divide your earnings for the month by 30 to arrive at your average daily pay. Multiply this number by two. Then, subtract this amount (two days of pay) from your total monthly income. This is the approximate cost of sick leave and a standard, two-week vacation each year. Most employers pay for eight to 10 days of sick leave for full-time employees, and most also pay for two to three weeks of vacation time.

As a brand-new freelancer, you might be reluctant to pay yourself for two to three weeks of vacation. Moreover, you may not have the ability to do so. If so, subtract just one day’s worth of earnings from your monthly income to account for sick pay.

Funds that are deducted from your regular earnings for sick pay, vacation pay, insurance, and retirement contributions should be set aside in a special savings account. As your profitability increases and your ability to maintain a comfortable, sustainable lifestyle as a freelancer improves, you can increase the amounts that you allocate for retirement savings and ongoing “employee benefits”.

Accounting Advice for Entrepreneurs


If you calculate your monthly earnings as a freelancer but don’t account for your tax liability, you’ll probably be in hot water at the end of the year. Keep in mind that as your earnings increase, filing your taxes quarterly rather than annually is going to be your best move.

The surest way to determine your likely tax debt is by consulting with a certified public accountant (CPA) or tax specialist before writing your budget. This professional will consider a number of personal and industry-specific factors to arrive at an individualized estimate of your annual or quarterly tax obligation. This will tell you how much money you should be putting into a savings account each month to cover this unavoidable expense.

Give Yourself One Full Year To Assess The Seasonality Of Your Business

The best way to calculate your monthly earnings as a freelancer is by first completing a full year of business. This is the only way to know whether your profits will take a dramatic dive during the summer months, experience massive increases during the holiday season, or remain fairly static across all four quarters. After you’ve completed your first year of business:

  1. Subtract your overhead costs, retirement contributions, sick pay, and vacation pay from each month of earnings
  2. Subtract a percentage of your monthly earnings for your annual or quarterly tax payment
  3. Add the remaining monthly income for all 12 months
  4. Divide your answer by 12

The final answer is your “mean” or average monthly earnings. It represents the best assessment of how much your business is capable of generating throughout the year. If you have months where you earn just $800 as a freelancer, and months where you earn as much as $7k, your monthly average might fall somewhere between $2,500 and $5,000. When you know your average monthly income, you can make informed decisions about how often you’ll need to work in order to reach your goals, whether or not you’re ready to take on new debt, and whether you require an outside, fixed-income source.

If your first month as a freelancer results in $7k in profits, quitting your day job and financing a new vehicle might seem like a good idea. However, months with as little as $800 in earnings could lie just ahead.

Consider Your Mode And Median Incomes Too

There are three different ways to look at any data set when you want to know how numbers fluctuate over time. These are mode, median, and mean, and they’re all measurements of central tendency. If you want to arrive at a single value that accurately describes the set of data that you’ve collected (your earnings for every month of the year), mode, median, and mean will each provide you with this value.

Freelancers can determine their average monthly income or mean income by totaling up their monthly earnings for a full year and then dividing their answers by 12. Where “mean” is your average monthly income, mode is the most commonly occurring value. For instance, if you earn approximately $5,000 each month for six months out of the year, but earn $800, $1,200, $3,600, $400, $400, and $250 in each of the remaining months, your mode income is $5,000. It means that most months, you’ll likely earn this amount or close to it.

Your median income can be found by listing your total earnings for each month from lowest to highest and then choosing the value that’s right in the middle. In a data set that has an even amount of numbers, you’ll have to take the two middle numbers and average them. For instance, if your earnings for your least profitable month of the year were $1,200 and your earnings for your most profitable month were $10,000, you might have two numbers like $5,600 and $5,800 sitting right in the middle. Simply add these up and then divide them by two. This is your median income.

Like mean income, median income is considered a reasonably effective way to determine your monthly income as a freelancer despite dramatic seasonal changes or other fluctuations. According to statisticians, median income is far less susceptible than mean income to influences from outliers. Over time, and after multiple years in business, you’ll find that your mean income provides the most accurate view into your earnings. However, you’ll also notice that there’s value in tracking your mode and median outcomes as well. They’ll tell you how often you can expect bad months and banner months, what an average month looks like, and more.

Give Yourself An Additional Margin Of Error

Calculating your mean income from a full year of freelancing is a great way to set a reasonable monthly budget. This number will also tell you whether you’re ready to give up any full or part-time work that you’re maintaining on the side. As a general rule of thumb, new freelancers are advised against “quitting their day jobs” until they’ve completed at least one year of freelancing and have at least three months of living expenses saved up. Quitting before this time puts tremendous pressure on side businesses to immediately succeed. More importantly, it doesn’t account for seasonal changes in income that are all but impossible to mitigate or control.

Err On The Side Of Caution

For freelancers, no two months are guaranteed to look exactly alike. In fact, they probably never will. To avoid common cash flow issues, collect as much income and expense data as you can. Reviewing this data will reveal cyclic times of seasonal highs and lows, areas of waste, and other important details that will help you strategically refine your income plan. It’s also a good idea to account for higher-than-expected business expenses and lower-than-expected earnings before taking on new debt, buying new equipment, or otherwise engaging in new spending.

Shawn Manaher

Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more. He loves to share his personal finance tips and money management wisdom with others on his website,, to help them find financial freedom.

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