Being a freelancer or an independent consultant can be extremely enriching and rewarding. You work for yourself, and at your own pace to create a body of work that matters to you. However, the bills don’t stop coming in. They still need to be paid, regardless of whether it’s a low-income or high-income month! Even if you don’t have the luxury of a steady paycheck and need to chase clients who owe you, there are ways and means to ensure that you’re able to meet your financial goals. Follow these tips to budget and save, despite an irregular income.
Focus On Your Monthly Expenses
The best indicator of how much you should be earning and spending is your monthly expenses. Factor in essentials such as rent, utilities like electricity, water, and gas, groceries, transportation, and most importantly, insurance. Track your spending to understand your habits, and cut out the superfluous or unnecessary expenses that don’t enrich or add value to your life. Try to ensure that you make more than your basic monthly outlays, and put the residual funds into a separate savings account. By determining your average income and expenses, you will be able to understand how to maximise every rupee.
Set Your Budget To Your Lowest Monthly Income
Says Nimrata Basu, a personal banker. ‘Most people with irregular incomes tend to focus on their necessary expenses as the baseline, which is the traditional way of budgeting. In some ways, it makes sense because you ensure you meet a certain standard. On the other hand, I believe that you must always work backwards and set your budget to your lowest monthly income. Factor in every single monthly income drawn over the last 18 months. The least number should be your benchmark. Try to ensure all your essential expenses are within this number. This way, if your income suddenly dips, you’ll still be able to live within it.’
Set Aside Funds From High Earning Months
Nimrata also recommends that high-earning months should be treated as a windfall and not the norm. ‘Don’t get overconfident if you have a few high-earning months and start leading the high life. Instead, use the extra income to set aside savings and invest in something substantial, such as gold, or the down payment on a car. Unless you are reasonably well-established in your field and already have a nest egg, don’t consider splurging on frivolities. It is important to keep your eye on the end financial goal, instead of getting carried away by the extra zeros.’ An occasional treat such as a weekend getaway or a nice meal out is fine, but don’t change your entire lifestyle.
Understand The Nature Of Your Work
There are several kinds of freelance work, each with a different kind of payment. Some jobs are project-based and promise a lump sum on completion. Others could be based on a monthly retainer. Although these need not be substantial, they provide the stability of a recurring income. There are also some seasonal jobs, especially those in travel and tourism. Commission-based jobs are entirely dependent on the results you’re able to bring to the table, while the gig economy continues to thrive and offer freelancers with innumerable opportunities. Depending on the kind of freelance work you do, it’s important to calculate your income and tally it against your expenses before making informed budgeting decisions.
Build An Emergency Fund
Since you’re unlikely to have benefits such as Provident Fund or Gratuity, it is important to build an emergency fund. This will hold you in good stead if you ever find yourself with unexpected expenses such as a huge medical bill or major repair. It will also have you covered for a few months in the eventuality that you lose a huge chunk of your income. Do not dip into the emergency fund no matter how tempting it may seem.
Consider Using Apps
Nimrata believes it is important to create a financial plan and roadmap while keeping in mind your unique circumstances – income, expenses and overall goals. ‘It may seem overwhelming to do this on your own, and a personal banker or advisor might be an expensive proposition. Instead, consider downloading budgeting apps, which will help you create a smart and tailor-made plan to ensure you are able to make the best of your irregular income.
Clear Off Any Debts
Lastly, it is unwise to leave any outstanding debts, as these may pile up. Before creating any kind of savings and expenses plan, pay off any outstanding loans so that you’re able to start your financial journey afresh.