By Jennifer Thompson


January 10, 2022

One of the biggest reasons people stick with their 9 to 5 jobs is financial security. The pay is predictable, and you can take a day off sick without impacting your income. In some cases, inconsistent performance at work may not impact your salary unless you were underperforming for an extended period.

It’s a very different scenario when you’re freelancing or running your own business, where income is neither consistent nor guaranteed.

But as more people move towards freelancing and entrepreneurship, your budget needs to be as flexible as your revenue. People with fluctuating income should focus on three financial themes: realistic goals, emergencies, and taxes.

Keep Your Business Goals Ambitious But Your Budget Conservative

When you work for yourself, you should decide how much you need to earn each month to afford your expenses, meet debt obligations, and save for the future.

Take the average of six months’ income and create a budget around that figure. Add up your essential expenses and make this the minimum amount of money you need to live. Use an app such as Mintmobile to track and budget your income and expenses. At the beginning stages of your business, this amount could be equivalent to your monthly revenue goal. But increase this goal as your business grows.

50/30/20. Rather than focusing on exact amounts, create a budget around percentages. Set aside fifty percent for necessities, thirty percent for lifestyle, and twenty percent for saving/investing. Setting a realistic budget can provide you with structure and consistency with your money despite your fluctuating income.

Prepare for Emergencies

For a healthy safety net in case of layoffs or medical emergencies, money managers advise us to put aside three to six months of living expenses.

That amount can be challenging to achieve when your income fluctuates. But because you don’t know when your next paycheck is coming, you must save as much as you can when you are earning something. You would not want to resort to debt in order to pay for unexpected expenses or for the months you are not able to earn any money.

Work towards building at least a few months of savings to prepare for dry spells. A solid amount of savings can smoothen the inconsistencies in your income. And you can be more selective about the types of work you accept.

Plan For Taxes

When you’re employed, your employer is responsible for withholding your taxes for you. The fact that this money never even shows up in your bank account makes the entire process of not spending it easy.

However, if you’re self-employed, you must be disciplined about setting aside a portion of your income for upcoming taxes.

Track all your expenses so that you can deduct the most, but remember to save around 30 percent of your revenue to pay for taxes.

Be sure to charge your clients an amount that considers the taxes that you will eventually have to pay for the work you’ve done. Getting paid $1,000 for a project does not mean you get to keep all of it. You will have to pay taxes on that $1,000, leaving you with a lot less than you thought you’d get. Consider charging $1,200 for that same project to take into account taxes.

Plan For Your Long Term Goals

Because your income fluctuates, you may find it challenging to set and achieve long-term financial goals such as saving for a child’s education or planning retirement.

One of the most significant benefits of working for an employer is that you can elect to be part of a pension program at work. In most places, this is mandatory. However, if you’re self-employed, you don’t have the luxury of a pension plan.

No matter how much you enjoy your work, the chances are that you may want to retire at some point. You must save for long-term goals. It could be to pay off the mortgage or retire comfortably.

Bringing It All Together

There are countless benefits to freelancing, such as the freedom and flexibility to do what we want, when we want. But your revenue is not consistent. At least, not initially.

It takes discipline and intention to create a system to manage your finances consistently, even if your income is not. You don’t want to run into financial problems while chasing your dream job!

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