If you work as a self-employed person, freelancer or salesman on assignment, you are familiar with the stress associated with an inconsistent income. You wonder from month to month whether you have enough to pay your bills and stay ahead or whether there is an invoice that has to be carried forward to another month. That of course means that you have to earn more money that month!
Is there a way to live consistently with an inconsistent income? Yes, it is. But it does require some planning, budgeting and saving. Here’s what you need to know.
Calculate your average monthly income
First, you should try to gain insight into your average monthly income. You can add up the income of the past 12 months and then divide the total by 12 to get the most accurate, current number.
Of course, you can’t count on your income reaching this level every month, but it provides a good starting point for the next few tips.
Know your figures
You need to know the absolute minimum amount you need to live every month. This includes the cost of living such as rent/mortgage, utilities and food, but also other necessities such as insurance. Includes everything that absolutely must be paid. Other expenses such as gym membership and entertainment may be added later when finances permit.
One thing that should be included as a necessity but is often not is a savings account. Especially if you have an inconsistent income, you need an emergency fund for those months that your income is below.
If you don’t live on a budget, you have to do so. Make a budget with these necessary expenses and the things you want to add when you can. Stay on top of your budget will help you to keep your finances under control. You will be able to see at a glance what you owe and what has been paid.
Review your budget at the first of the month so you know what your goal is for that month. Review your budget weekly to see what expenses you can pay and where you are financially. And at the end of the month, look again to see where you fell short and what you need to make up.
Establish a normal level of life
This is the most critical for my wife and me. We have a very inconsistent income, but we do not allow that income to determine how we live and how we spend our money. Our spending and standard of living are basically the same, regardless of whether we have our best month or our worst month.
Since you have already calculated your average monthly income and created a budget based on an income below average, you should have a normal level of life if you maintain a normal level of life.
Don’t go crazy and spend money like crazy if you have a good month. And if you do, you don’t have to panic and live like a pauper during your bad months.
It can be very tempting to blow a lot of money if you make a lot of money. It’s good to celebrate and enjoy your money, but keep it within reason. Remember that things are likely to change and you need to prepare.
Extravagant spending can sometimes make it even harder to live on a lower income and you will really feel the impact of the fluctuations. But if you establish a normal level of life, you are not on the same emotional roller coaster.
Live on last month’s income
Work towards living on last month’s income instead of the current month. This will require some planning and savings as you will need to set aside at least one month of your regular income. Use your income from the previous month to plan your expenses and savings for the current month. Having enough money in the bank to cover this month’s expenses will reduce some stress and allow you to focus on the future (next month) rather than on the present (this month).
Setting up payment reminders for bills
If you’re juggling multiple projects or starting a new business, you’ll be pretty overwhelmed; you’ll need to keep an eye on project due dates, marketing appointments, customer acquisition and meetings. Remembering to pay the bills could fall between the cracks of your hectic days. Setting up automatic invoice payment for as many of your monthly expenses as possible will make a big contribution to giving you financial security. If you prefer to pay manually, try digital wizards like Google Calendar. The platform sends you notifications of bills due so you don’t miss out on payments.
Save for the future
At the same time, you want to spend money on emergencies and on your financial goals. The only way to do this is to discipline yourself about saving, regardless of the performance of the month. Start with a manageable amount, such as maybe $100, that you invest each month for your financial goals. Agree to this amount no matter what happens. Any additional money you earn should be invested immediately. As you build your freelancer or new business, your income will grow and you will need to invest more in yourself.
The “60% solution”
There is also an idea called 60% solution. This was developed by Richard Jenkins at MSN Money, and in short, he advocates diving your monthly gross income as follows:
– 60% of the expenses – everything from the normal bill to the clothes to the gift.
– 10% until retirement
– 10% on irregular expenses – holidays, major purchases and the like.
– 10% on long-term savings or borrowed capital – depending on the situation one of them.
– 10% on fun – entertainment, hobbies, etc..
USE A SPAR-APP TO REDUCE COSTS
Thanks to the digital age, there are many apps that can help you facilitate all facets of your life, including managing your finances. If you are unable to automate your savings or limit your monthly spending, use an app like Digit or Qapital that can be set up to track your cash flow and automatically transfer money to a secure savings account for you from time to time (as long as you have money that flows in and can afford it). Apps like these are an easy way to realize emergency savings without having to go beyond downloading the app and linking a bank account.
You can enjoy financial freedom with irregular income as long as you continue to work with tools and strategies to create the right financial framework for you.