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Freelancing makes budgeting tough. Here's how one woman took control

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Laurence Bradford loves owning her own business. She doesn't love being at the mercy of clients who pay bills when it's convenient for them, not for her.

Bradford sells and teaches an online course in computer programming. The 26-year-old cheerfully works 12-hour days growing her business, making money both by selling her product and from sales commissions generated by her website.

But cash comes in irregularly. In November 2015, she earned $2,400 in commissions when her website sent customers to an online store. The company that runs the online store usually takes 60 days to pay, but she didn't receive any money in January. In February, it told her the check was lost and would be replaced. Bradford was forced to pay her bills in February by transferring money from her small savings account, sweating a 12-hour negative balance until the funds from the replacement check cleared. Money worries jolted her awake at night and woke her up in the morning. "It can be terrifying," she says.

More than 15 million Americans are self-employed, according to the U.S. Bureau of Labor Statistics. A recent JPMorgan Chase Institute report, Paychecks, Paydays, and the Online Platform Economy (PDF), found that 55 percent of people experienced changes in income of more than 30 percent on a month-to-month basis.

Being your own boss has its advantages — freedom, flexibility, and a sense of ownership. But it can also cause cash flow problems when checks don't arrive or work dries up unexpectedly.

Personal finance expert Kathy Kristof says late invoices and work slowdowns are inevitable. "Like property tax payments or insurance premiums, they're irregular financial upsets that you ought to expect," she says.

Kristof recommends saving at least six months' worth of living expenses before venturing out to work for yourself. "Plan for a long stretch of things not working out like you expected them to," she says.

That's something Bradford learned the hard way. Some of her clients are small companies that pay whenever an accountant gets around to cutting checks. Others pay on a 60-day schedule, which can be tough on freelancers: Bradford earned $5,800 in January, but she won't see that money until early April.

Bradford, who's been self-employed since the summer of 2013, did very well for two years. When she started working for herself, she lived in her hometown of Bethlehem, Pennsylvania, where her basic monthly expenses were as low as $300. That's when she started her business, LearnToCodeWith.me, which initially brought in anywhere from $200 to $500 each month.

In August 2015, Bradford relocated to Boston to move in with her boyfriend — a decision that knocked her finances sideways. She spent $1,000 on the move, then put down $6,000 — most of her savings — as a security deposit and advance rent for their new apartment. The next month, her course and website brought in $3,500. But things didn't go as planned: She only made $300 in October.

Bradford budgets by cutting spending to the bone. She doesn't shop for new clothes and has done away with almost all treats, including manicures, eating in restaurants, and going out at night. Her boyfriend has covered their rent since October, but she pays their other monthly bills, and her cash cushion from Bethlehem is down to about $500. Bradford used credit cards to keep her business going and went into debt for the first time in her life. Her new plan is "to save during the good months so I can cover everything in the slower months."

There are other ways for freelancers to budget. Personal finance author Beverly Harzog suggests "income averaging" — taking last year's earnings and dividing by 12 to get a sense of how much money you'll make in a month, so you can plan your spending more carefully.

This makes income patterns, such as sales slowing down in summer but soaring during the holiday season, easier to identify. "If you're aware of the up-and-down nature of your business, you can adjust your spending accordingly," says Harzog, herself a freelancer.

Despite Bradford's difficulties, she's happy with the choices she's made. She'll soon relaunch Portfolio Dojo, her course on web design and begin offering less expensive products like e-books and mini-courses. Her goal is to reach 100,000 readers and earn $10,000 a month.

Until then, budgeting may be difficult, but Bradford has her expenses under control and says she's thrilled with her work. "I love the emails I get from readers and I love how I have control over my schedule," Bradford says. "I am head-over-heels in love with what I get to do every single day."

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