How To Budget For PTO As A Freelancer [with Easy Steps]

Self-employment and freelance work are businesses with ebbs and flows, making it hard to take a rest, but everyone needs a break for a while.

And if it’s a (PTO) paid time off, it’s nothing but a cherry on the cake.

However, making this decision varies depending on several factors, including budget, members who live with you, and future plans.

When you’re self-employed, you must earn and save more to enjoy the additional benefits like permanent or traditional employees.

Key Budget Strategies for PTO

To make PTO possible as a freelancer, you have the option of short-term savings.

The following considerations, in addition to the simple principle of spending less than you make, can ease your work plan.

1. Keep Your Income Consistent

Though it’s hard to keep a fixed income streak all the time, you can balance your earnings collectively if done with plans.

For this, you can fix your hourly rate to figure out how much to charge with a simple formula.

Remember, full-time freelancers in the United States work for $48 per hour in 2024 while the pay rate is $21 per hour globally.

You need to set part of your rates in a way that ensures you earn, allowing you to leverage PTO.

Let’s break it down further!

If you’re working, you can bill 4-5 hours daily. This means you may take the same amount of time off as when you receive a monthly paycheck.

For instance, if you take 20 holidays, 7 days for health checkups, 12 holidays, and 13 days for miscellaneous activities, you will still have 45 working weeks left in a year.

It can add up to $1000- $1200 billable hours annually.

2. Save More

Make lots of savings, but how much?

It depends on your income and lifestyle as well as the type of freelancer you are.

If you have just started, set smaller goals, such as one week’s worth of income, and then increase gradually.

Freelancers have the option to create a business checking account that invoices get paid into, which enables you to pay yourself monthly for a certain portion of your income.

Besides, you can have high-yield savings accounts for your short-term savings, earning you interest based on your balance with the benefit of still using your funds.

Pro Tip: Follow the 50/15/5 Rule, which allocates up to 50% of net pay to essential expenses, 15% for future retirement, and 5% for unplanned expenses.

3. Schedule Your Paycheck

This includes how often you pay yourself: weekly, biweekly, or once a month.

If you’re a beginner, getting a handful of your earnings at the end of the month might only be an essential option.

Besides, S Corp’s strategy can change the whole game. This allows you to pay yourself a fixed amount on a dedicated date, whether you are hospitalized for a week or down on the business in a particular month.

However, the catch is that you can only take this benefit if your earnings range from $75,000 to $100,000 per year.

4. Track Emergency Options

Emergency funds can be a lifesaver for you, which can help with unexpected coverages, such as medical bills, car repairs, and unplanned travel and business expenses.

According to Everly Report, only 58% of freelancers have health insurance coverage.

Target saving the 5% of your after-tax income but you can go with $1000 or more depending on your freelance income.

The smart way to deal with emergencies is by buying personal insurance for a short maturity period.

Besides, there are other options including Freelancers Relief Fund, Pen America Writers’ Emergency Fund and Small Business Grants Program.

Instant Steps To Take

Independent workers have a flexible calendar for vacation or leisure work as they can work from anywhere, but they should not enter this randomly.

Unlike traditional PTO, freelance paid time off is a result of wise budgeting and saving, which needs extra effort.

If you still need to plan your time off, consider this your guide.

Step 1. Plan Early

Most employees take their time off at the end of the year, ranging from December 20 to January 3.

Besides, they also request their PTO from February through July if they feel it is needed twice a year.

Though freelancers can set flexible schedules for their free time, it’s recommended that they take vacation twice a year.

To make a successful PTO, you must schedule the calendar at least 3 months before you head out.

This helps you manage your continuous projects and handle the pending work, aligning clients’ deadlines.

Step 2. Budget for Your Vacation

It includes your estimated vacation days and expenditures based on your current freelance income.

First, you need to determine how many days you want to be away from work. Try not to take a too short or lengthy vacation—two weeks are enough.

The catch is that freelancers do not have real PTO; they can only budget it from their volatile income.

For this, they can increase their service charge or hourly rate or take on as many projects as possible. However, they should be wise enough to negotiate and deliver their quality work.

To budget, you need to calculate your weekly income. Even if you’re not sure about the current fiscal year, continue with the previous year.

For instance, if you’re currently making $5000 on average per month, $1250 is your weekly income. So, you need to save $2500 for your PTO.

Pro Tip: Create a business bank account for your freelance income and a personal account for your own personal finances.

Then, schedule an automatic fixed payment based on your income every two weeks from business to personal account, so you can get a regular paycheck coming in for your future vacation.

However, your vacation destination, the number of members on the journey, and expenses also determine the shape of your budget.

Step 3. Inform your Clients

You cannot set off without telling your clients as you need to make a professional relationship with them and work with them after the vacation.

Reach out to them and politely inform them about your vacation with the planned timeline via email or other mediums as a “prior notice.”

Here is a sample for your inspiration!

It is good to tell your clients at least a month in advance so that you can complete sufficient work for them and handle your payment accordingly.

Saying “No” and not responding to clients is a bad sign for your freelance business. So, if your clients message you during your vacation, even after the notice, they may forget about your vacation.

In this situation, you can generate an auto-reply system telling them that you are out of the office or on vacation.

Besides, you can subcontract your freelance work and assign other fellow freelancers in your absence.

This will also help you complete urgent and important assignments for clients and continue workflow while you are on vacation.

However, for this, you need to hire responsible and skilled freelancers who can match your standard of quality work.

Step 4: Enjoy Fully Your Time Off

Don’t be afraid of missing out! Many freelancers worry about their ongoing client projects, thinking that the break can destroy business relations.

But like any other, freelancers need a good vacation to spend quality time alone or with the family.

Besides, relaxation and time off can benefit you by providing you with a productive mind and work-life balance.

In many cases, freelancers attend clients’ emails and calls and even complete quick or short assignments on their requests.

As a result, they end up working other freelance jobs all through their vacations, which only destroys the pleasant moments.

So you need to stay away from freelance work until the holiday ends.

It will be different if you plan your holiday involving your freelance work together, which many do throughout the year.

Wait for a While

If you’re only a sprouting freelancer and have the columns of income and expenses totaled equal, you must wait and save more for a few months until your income column adds extra amounts.

For those who cannot afford an extended vacation (1-2 weeks long), start with a small package, such as a 2-4 day vacation.

You need not worry about budgeting if you continue freelance work touring different destinations or traveling throughout the year as a digital nomad.

Final Thoughts

Paid Time off not only avails the vacation but provides time for voluntary work, festival, leisure or productive activities at home also.

PTO is not included in the rough income of freelancers; they need to earn it through savings instead.

It may seem like an extra bit of work, including planning, budgeting, and convincing clients, apart from the gig work. You can reap a healthy work-life balance once you get into the habit of all these.