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Freelancing hits differently in flush and tight months. Yes, flexibility, freedom, and doing what one loves are the positive sides of freelancing. But personal finances on an irregular income feel like a nightmare. Some months you have lots of funds, but in other months, you struggle to pay bills. How to budget on irregular income becomes more challenging.
Unlike the salaried class, freelancers need to actively work on their finances to attain stability or sustain growth over the long haul. However, in this blog, we will explain 7 powerful ways to manage irregular income. We will help you budget using actionable and practical strategies. It doesn’t matter if you’re a web developer, freelance writer, graphic designer, or a gig worker; these freelance budgeting tips will equip you to manage your finances smartly and become financially resilient.
Unlike the salaried class with a steady paycheck coming in on set dates, freelancers have to cope with challenging, varying and unpredictable income. Odd times of new projects, different payment timelines, and the struggle to estimate how much work is available make. things difficult for freelancers to budget. That is why budgeting for freelancers requires discipline and flexibility.
A freelancer can also face cash flow issues if they lack a proper functioning financial management system. Working toward financial independence should be the goal.
Irregular income refers to fluctuating monthly income that makes financial planning difficult. Common irregular income examples include:
Freelancers:
No fixed income; rather depends on client work. Varied volume and payment timelines cause turbulence.
Seasonal Businesses:
Some businesses like winter clothing earn well in peak season and little in off-peak season.
Commission-based jobs:
Sales cycles determine income. The market fluctuates quickly too.
Unlike traditional employment, irregular income requires a different approach to manage your finances. Planning is essential because you can’t determine your next month’s income.
However, you can estimate by average income to decide how much you should separate for needs, wants, savings, or business. Add up your Last 12 months’ income, and divide it by 12. If you want to play safe, set the lowest earning month as a baseline.
In addition to your non-negotiable costs, you should also assess your other expenses where you can be a little more flexible. These expenses include:
Lifestyle Expenses:
These expenses may include travel, live entertainment, streaming subscriptions, and dining out.
High-interest debts:
If you want to eliminate high-interest debts, review how much you allocate during bigger earning periods.
Saving Goals:
When you have an extra cash flow, think about crucial saving objectives. This may include retirement funds, educational savings for a child, or home renovations.
Ordering all of your negotiable expenses can make it easier for you to determine where you should put your extra cash flow.
Looking ahead is a must for irregular income. Review your expected earnings and monthly bills for next month to ensure you have enough money to cover lean months. A flexible monthly budget based on estimated income helps make a budget for essentials and prevents financial surprises.
You can also use budgeting apps for freelancers that can help self-employed professionals track expenses and monitor cash flow.
You Need a Budget (YNAB): Offers proactive features to help you plan every single dollar you earn. That’s perfect for freelancers to budget variable income.
PocketGuard: Connects to your bank accounts and shows you disposable income you have after meeting your monthly bills and essential expenses.
Wave: It’s a free accounting and invoicing tool with budgeting capabilities that helps independent professionals and small business owners according to their needs.
If you save money on monthly allocated amounts, roll it over to next month’s budget. This approach creates a buffer that helps cover income gaps and maintain stability in your financial planning.
We often come across financial advice that never relies on a single income source. You may be already on it, too. Diversifying your income helps you to budget with irregular income. You can weather financial storms and keep yourself on safe shores in uncertain times.
You may utilize several hustling ideas within your skillset. For instance, if you are a freelancer, you can add a new income stream through:
Find New Clients:
Get more active in the current freelance market, talk to your network, or use social media to find new clients. Use the referral program to incentivize current clients to get new ones.
Offer Diverse Services to Grow Online Presence:
What services would enhance your current offers? If you’re a web developer or a freelance writer, you could create a course or offer discounts on certain services. It can help more people break into the field.
Incorporate Affiliate Marketing:
Affiliate marketing could be a great way to add another source of income. It’s a semi-passive approach. For example, you’re in beauty professional, so set up affiliate marketing and earn commission on each purchase.
The digital landscape opens heavens of income streams if you step out of your comfort zone. Risks are there, and so are the rewards.
Even if your baseline income meets your expenses, it’s always worth looking for ways to minimize your costs. Here are some possible ways to do that:
Choose generic brands:
If it’s possible, go for generic brands over popular ones. You may save on groceries, over-the-counter medications, clothing, and other items.
Share Membership or Subscription:
Consider sharing membership or subscription with friends or family members to cut monthly or annual costs. Before getting an account, check if they offer shared services.
Check your insurance:
If you haven’t shopped for a while for auto or homeowners insurance, evaluate your insurance. New customers often get discounts that can save big bucks.
Based on your circumstances, you should consider ways to minimize costs. We all have some cheat codes that are worth nothing beyond that specific period.
An emergency fund is a strong strategy in any strong financial plan. It gets even more critical for someone living with irregular income. In any month with some excess cash flow, prioritize building up a buffer of emergency funds so you can cover shortfalls when they occur. A robust emergency fund makes it easier to manage any big financial emergency, such as home or car repairs, medical bills, etc.
Many financial experts advise on building an emergency fund of worth three to six months. Emergency fund for freelancers translate to determine the right amount to save for you.
On an irregular income, flexibility is the key of setting up a budget. While standards rely on setting financial goals and hitting them monthly, budgets made for unstable income need regular revisits. They need to be updated throughout the year to align with your situation.
Ideally, you should keep your expenses the same. But on budget surpluses or deficits from one week to the next, assess where you’re falling short and update it accordingly.
It’s also crucial to reevaluate your income to determine for any upward or downward trend in your earnings. If your income goes below baseline on certain months, cut back further. On the other hand, if your income exceeds expected numbers, expand your savings and lifestyle expenses.
Budgeting irregular income is certainly possible with a little more diligence. That’s especially true when you want to increase your income over time. Regardless of the measures you take, it’s essential to understand your financial situation and goal, so you take an informed budgeting approach. 7 powerful ways to manage irregular income above are a great way to begin getting around it.
Irregular income is difficult to budget. But with a solid strategy, you can hone your finances from the get-go.
Fluctuating monthly earnings refer to irregular income. Irregular income examples include freelancers, creatives, seasonal businesses, etc. Unlike traditional employment, irregular income calls for a different approach to manage your finances.
Lots of great options are available but it depends on your preferences. I personally prefer YNAB and Monarch Money. Google Sheets templates are also good. Determine your financial goals and choose whatever suits it.
That’s another important question often asked by freelancers. Here emergency fund for freelancers come into play. You should have an emergency fund for 3 to 6 months’ worth of expenses. During low income months, withdraw funds from emergency fund. Continue searching for work.