Guest post from Angie of Live Healthy Save More
Choosing to live debt-free is a challenging task for anyone, but it is especially difficult for anyone dealing with an irregular income. In today’s changing economy, more and more people are adopting freelance, self-employed, and contract-style careers.
Sticking to a budget, paying off debt, and saving can be incredibly difficult when your income varies from month to month. Long term planning can also be very challenging when there is no way to predict how much money will be coming in.
My husband and I have been in this situation for the last two and a half years. He is a freelance violinist. I am a doctoral student, freelance administrative assistant, and blogger.
We went through Financial Peace University our first year of marriage, and it changed our lives. However, many times we had to adapt Dave’s suggestions to fit our “non-traditional” lifestyle. Although it has not been without set-backs, we have learned a lot about how to plan and budget with a irregular income.
Here are five simple tips you can use to harness the power of your variable income to achieve your goals:
1. Build a larger emergency fund.
Freelance or contract income is often incredibly unpredictable. Gigs or contracts fall through, or customers delay payment.
In light of this unpredictability, I highly recommend building at least a three-month emergency fund before putting any extra money toward paying off debt. This will give you a large cushion to rely on in case you have a slow month or a job unexpectedly falls through.
We learned this one the hard way. When we only had a small emergency fund, we often found ourselves on the ever-revolving cycle of having to put essentials on the credit card while waiting on a payment from a previous job.
2. Budget a month in advance.
Another way to prevent the credit card cycle and to avoid frequently draining your savings is to budget a month ahead. For example, everything we make in February goes towards paying the bills in March. February’s bills have already been covered by January’s income.
Being a month ahead gives you the flexibility to have a whole month to prepare if gigs or contracts dry up. It also allows you to wisely allocate unexpected extra income.
If you know next month’s bills are covered, you can put this extra income towards savings or debt payment. If you are receiving a tax-refund, you could use it to jump start your month ahead budgeting.
3. Know your seasons and stockpile accordingly.
Living with a “non-traditional” income often comes with seasons of feast and famine. It is important to plan for these seasons as much as possible. For example, I know that we have less income in the summer.
This means that during our busy season (February through May) I intentionally look for extra deals and sales. If spinach is on sale for 99 cents, I may buy two bags and freeze one for later use. I take extra time to coupon and add to our toiletries stockpile. I also garden in the summer to reduce our grocery bill.
4. Get organized.
This is a huge key to success on a variable income. Know when your big non-monthly bills are due and save monthly whenever possible. We use automatic savings bank drafts to ensure we will have the cash for our yearly instrument and rental insurance payments.
Also, keep track of all income. We use a modified version of this spreadsheet. This will help with long-term planning.
This spreadsheet can also help with tax planning. You can also use this to track receipts and possible deductions. I am not a tax expert, so I will not attempt to offer tax advice. However, I will say that it is imperative to keep track of your income and to have a plan for tax payments. We also learned this one the hard way!
5. Stay in your day.
Although planning ahead is vital to financial success, everything must be done in moderation. Planning can quickly turn to obsessing, especially when there are unpredictable months ahead. I limit the amount of time each day that I spend working on our finances in order to prevent excessive worry.
A friend, who has recently overcome a major life obstacle, shared with me her secret to success. Her motto is, “Stay in your day”. Plan wisely, but do not allow your planning to pull you from living well in the present.
“Worry never robs tomorrow of its sorrow, it only saps today of its joy.”
Do you have irregular income? What are your tips for sticking with a budget? I’d love to hear!
Angie is a doctoral student and online writer. Outside of her academic pursuits, she loves creating useful and innovative online content about healthy living. She also enjoys spending time with her amazing husband. Her other favorite things include chocolate, sports, and sunny days. She blogs at Live Healthy Save More.