With an irregular income source, it is pretty common to have “feast” income this month and “famine” income next month. Sometimes, a dark cloud of fear and anxiety looms over you because no client accepts your bid. Budgeting paves the way for tracking your expenses, a vital way to be in the driving seat, but this method is appropriate for fixed-income earners. How will you stay on top of your expenses if you do not have one?
Many freelancers have reported that budgeting is harder for them because one month, they earn thousands of pounds, and the other month, they are absolutely breaking. Irregular income should not be an excuse for holding you back from budgeting. Budgeting with too much and then too little income is undoubtedly complicated, but it is not impossible.
Budgeting tips for irregular income earners
Here are the budgeting tips for irregular income sources:
Set your minimum monthly budget
Although your income is irregular, there must be several expenses that are fixed. They include rent, maintenance and the like. Get a bank statement for the previous three months to see the nature of your expenses. You will find out how much money you have already spent on what. Calculate the average of the previous three months’ expenses.
To make your budget work for you, you need to understand how much money you spend on where. You will have to cut back on inessential expenses to contribute more to your savings account. You should know how much cash came in and how much went out every month to know whether outgoings were less than incomings or not.
Every month you should be able to make enough money to cover your fixed bills, such as mortgages or rent and other debts, but that is not enough. There are other expenses, too. How will you pay for groceries? How will you pay for toiletries and other products? Your day-to-day needs cannot be classified inessential and rebuffed.
Here comes a philosophy of relying on the previous month’s income. This means this month’s expenses will be paid by the previous month’s income, just as a full-time employee would. Because your income is not steady, you should calculate an average amount of income you need to cover all expenses every month. When you earn more than the average money you need, make sure to set aside the extra amount to use for the month when you earn very little.
Build an emergency cushion
The excess amount you earn in any month should be kept in a separate savings account, but do not treat it as your emergency cushion. Excess earnings in a particular month will help you get by when you earn very little. An emergency cushion is aimed at meeting your unforeseen expenses, not regular ones.
You should set a fixed portion of money to transfer to your emergency cushion every month. For instance, if you choose to transfer 10% of your income, make sure you do it even in months of little income. It is mandatory to be consistent to grow your emergency cushion.
Having a nest egg is paramount if you are a freelancer or your income is not consistent due to any reason. With the help of these funds, you can meet all kinds of unexpected expenses. You can take out loans with guaranteed approval from a direct lender if your emergency cushion has fallen short of cash.
Do not be frantic when you receive your pay
When you receive a large paycheque after spending a full famine month, you begin to reel in excitement and spend money to treat yourself. It is easy to feel like you can afford things for which your budget does not have wiggle room. Therefore, it is crucial to resist the temptation of spending money on expensive clothes, footwear and dine-out. Otherwise, you will not be able to have enough funds to survive another month.
Instead of spending the sum on your discretionary expenses, you should try to set aside the surplus of cash. Make sure you do not spend more than you need in that month. As you receive your paycheque, you should immediately set aside the surplus cash for unforeseen expenses. What you are left with is what you can spend in that month.
You can spend a little bit of money on discretionary expenses such as eating out, but make sure you do not spend a lot of money on it. You will have to pull in your horns to ensure you stay in control of your expenses.
Try to downsize
Because your income is not regular, you will need to rely on a frugal lifestyle. It includes downsizing your lifestyle, too. Some freelancers earn enough to stay afloat, while others struggle to make ends meet. In that scenario, you will have to live on a bare-bone budget. It means there will be no scope for your discretionary expenses. A bare-bone budget is the solution until you manage to bounce back.
- Talk to your mobile contract company and broadband service provider to know if they can switch you to a cheaper plan.
- Disconnect the cable if you prefer OTT platforms. Subscribe for the only month you want to watch your favourite content.
- Consider how you can save money on your car insurance premium. There are a few hacks to trim down the insurance cost.
- If you are still in trouble, you should move out to another place where you can find cheaper rent.
Frugality brings down your expenses and, as a result, you will see a growing amount of your savings. Apart from that, you should figure out ways to increase your income. Despite frugality, you need enough money to cover your expenses.
Earn more income
As a freelancer, you can pick more work if a lack of projects is the cause of you falling behind on payments. Create your profile on all freelance platforms where you can get projects of interest to you. Make sure you promote your service as much as possible. The more you promote your service, the higher the chances of drawing in clients. Be smart about your bid.
Do not shy away from overtime if it brings in more money. Everybody, at some point in their life, puts their nose on the grindstone to achieve success. Have passion and motivation. It can be laborious to work extra hours, but it is worth it.
Hone your skills to get projects from different niches. For instance, a freelance writer can be a social media executive, too. Learn graphic designing and web development. You will earn more than you earn through writing.
Until you learn the basics, you can get a side gig like walking a dog and being an Uber driver. The money you make will help you get by when you cannot make sufficient income from your freelance projects.
The bottom line
Freelancers or other irregular wage earners often find it hard to manage money. You should identify how much average money you need to cover all your expenses and then accordingly create a budget. Trim down your expenses if you have to, and find ways to improve your income.
