5 Tips to Surviving as a Freelancer With Inconsistent Income
Ah, the joys of freelancing: working when you want to, wearing your comfy clothes, setting your own schedule, being your own boss. There are myriad advantages to being the master of your domain. Alas, there are drawbacks as well — and the biggest one is fluctuating income.
When you’re juggling multiple jobs, all is well financially, but when you’re in the midst of a dry spell with an uncertain end date, it can be quite stressful. Still, with a little planning and organization, you can better your chances of weathering the thin times. Here are some ways to minimize at least this one worry in your life.
1. Create a Budget
To plan it conservatively, use one of your lower-income months as a guide.
With everything you’ve got going on in your life, stop keeping all your financial obligations stored in your noggin — make a budget. To plan it conservatively, use one of your lower-income months as a guide. That way, you’re building in a cushion. Then list out all your fixed and variable expenses in order of priority. And don’t forget to budget for annual expenses, such as auto insurance premiums.
Always make sure to pay at least the minimums on your credit cards, and ratchet that up in the flush months. The goal here is to spend less than you make each and every month and avoid ever getting in over your head. You may not do this consistently, but it’s something to shoot for.
2. Monitor Your Spending
A budget is only as good as the money that funds it. One common mistake people make is to vastly underestimate what they spend. Fix this by cutting back on credit card use, switching to cash, and tracking every cent for a month or two. If you budget for $250 in entertainment expenses, movie tickets, dining out with friends, and the like, but actually wind up shelling out $350, you need a reality check.
There are many apps and online services, such as Mint, to help you track your dollars. Find out where you overspent (or underbudgeted) and reassess. Once you have a handle on what you should be spending for various needs and wants, stick to it.
3. Always Save Before You Spend
Whether inconsistent income or straight salary, the golden rule still applies: Pay yourself first.
Whether inconsistent income or straight salary, the golden rule still applies: Pay yourself first. As a contractor, you won’t have the option of an employer-based 401k plan. But you still have opportunities to prepare for your retirement.
Consider a self-employed 401k or an IRA, and set up automatic contributions. This way, you’ll be saving money before you spend a dime.
4. Don’t Go Nuts in the Flush Months
Throughout the year, you’ll have good and bad times. So you need to view your income as an annual entity, not month to month. If you’ve made a budget and have been sticking to it, and then you have a particularly profitable month, keep yourself in check.
It’s okay to reward yourself for a job well done, just don’t break the bank. Saving during the stellar months can serve as coverage in those times when you fall short. And if you keep it reined in during the solid months, that will carry over through the year.
5. Create an Emergency Fund
This is the most important piece of the pie, and you can stock it up as you generate income. You need at least six months’ worth of living expenses on hand, especially since your income is variable. But to be fully protected in today’s economic climate, your ultimate goal should be a year’s worth of cushion.
Even in these low-interest-paying days, make sure the money in your emergency fund is generating at least some interest. It also needs to be fully accessible and should be in an FDIC guaranteed account. Savings or money market accounts are good, stock investing with these funds…bad. Think of this as your umbrella from the storm.
Just because you work from home and have inconsistent income doesn’t mean you can’t have financial peace of mind. All the old rules still apply: budget, save, and plan for retirement. So what if you can attend to them a bit irregularly – you’re still sticking to the plan. Sensible spending and diligent saving will carry you through the lean months, and you’ll feel flush all year round.
What other ways can you think of to budget on a fluctuating income?
You should always seek independent financial advice and thoroughly read terms and conditions relating to any insurance, tax, legal, or financial issue, service, or product. This article is intended as a guide only.