In recent blog articles, we spoke about ways to make money to increase the cash flow to your financial goals. For instance, in this article, we discussed some of the more popular side hustles and ways that you can join the gig economy. You may become so successful with your side hustle that you go into it full-time. You leave your previous employment. The challenge becomes, how do you manage your finances when your income is inconsistent.
There are other reasons your income might become inconsistent. If you decide to pursue your dream of founding your own company, you will have an up and down income stream for some time. If you are fresh out of college, you may need to pick up a few odd jobs here and there, until you find the opening you are dreaming about. This will also result in a fluctuating income.
How do you stay sane, manage your finances and even build wealth when your income is inconsistent?
Here are 4 crucial tips to help you out.
#1 Budgeting is Imperative
Whether you have a steady paycheck or are freelancing, the key to financial freedom is to budget and control your cash flow. There was quite a bit in the news lately about the high percentage of Americans living paycheck-to-paycheck. Even when your salary is pretty good, you may find yourself broke at the end of the month.
There are a number of causes for this, but one is a lack of control over cash flow. This means that you spend all the money as soon as it comes in. If your income is inconsistent, this habit will bring you to financial disaster.
During the lean months, you will find yourself with no money to pay your routine bills that arrive on schedule every month regardless of your fluctuating income. When this happens you might be tempted to turn to credit cards to pay your bills. But this will only lead to deeper debt: the exact opposite of financial freedom.
You cannot survive without a realistic budget and financial discipline.
Take full advantage of budget apps to help you set up your cash flow and maintain control over your income and expenses.
#2 When Your Income is Inconsistent, Make it Appear Consistent
An inconsistent income has its challenges, but you want to do more than survive each month. You want to get money going to your financial goals too. For this, you need to make your inconsistent income appear consistent.
This is especially true if your income is project-based.
For instance, you are freelancing as a writer or editor and you are paid when you complete articles or a book. Or you are hired for a 6-month consulting project. Behave as if your project income is your entire annual salary. Right away, take a percentage of this income and put it into savings. How much depends upon two factors: (a) the amount your budget says needs to be paid out every month to recurring expenses and (b) the number of months you anticipate it will be before your next project income arrives. The goal is to have enough in savings to cover you during the months when you do not have any income.
Or, let’s say you are working regular gigs, but your income is inconsistent from one month to the next.
For purposes of your budget, you need to find an average monthly income. Add up the total and divide it by 12 months to arrive at a monthly income. This is what you have to live on and to pay your bills, regardless of what amount actually comes in each month. If you are successful and your income exceeds what you have budgeted, take this right away and put it into savings.
The one thing about working for yourself is that you never know what the next day will bring. You need to be prepared for those lean months when you have no gigs or considerably less income than you need to pay the bills.
#3 Set Up Bill Paying Reminders
If you are juggling multiple projects or starting a new business, you are going to be pretty overwhelmed, You have to keep track of project due dates, marketing deadlines, client recruitment and meetings. Remembering to pay the bills could fall between the cracks of your hectic days. Setting up automatic bill pay for as many of your monthly expenses as possible is going to go a long way toward bringing you financial peace of mind. If you prefer to pay manually, try digital assistants, such as Google Calendar. The platform will send you alerts about bills that are due so you don’t miss payments.
#4 Save for the Future
At the same time, you want to put money away for emergencies and toward your financial goals. The only way to do this is to become disciplined about saving, regardless of the month’s performance. Begin with a manageable amount, such as maybe $100 that you invest every month for your financial goals. Be consistent with this amount, no matter what. Any extra money that you earn should be immediately invested too. As you build your freelance or new business, your income will grow and you will have more to invest in yourself.