Nearly half (42%) of people with freelance, gig or flexible work schedules cite the variation in their income as the reason they struggle to pay their bills.* Nothing beats the freedom of having your own gig, but just because your income is irregular doesn’t mean it has to be out of your control. When your total take home pay changes each month, it’s safer to pay for your current month with the money you made last month. This can help prevent shortfalls and surprises, but first you have to get there.
Know your monthly essentials.
Whether your income fluctuates or not, you need to know your baseline budget. These are the absolute essentials to get by each month. These are fixed monthly expenses like housing (rent or mortgage) and childcare as well as variable expenses like utility bills, transportation, and groceries. To calculate each of your variable expenses use the average of your last three months of bills. And don’t forget to include debt repayments and savings in this budget. Once your essentials are covered, it’s helpful to consider these as just another bill in your fixed and variable expenses.
Know your spending habits.
There’s essential spending and there’s discretionary spending. These are things like dining out, hobbies, extra clothes and even cable bills. Yes, they feel important for a balanced life, but they’re also an ideal place to find “extra” money to stash away.
This can be the hardest part of budgeting. Start with the last 3 months of your overall spending (this means looking across all your bank cards and estimating cash spending) and subtract your monthly essentials amount. The amount leftover is what you have to spend on all of your discretionary spending items. If it’s not enough, you may have to make some adjustments.
Build your emergency fund.
Right now, 47% of Americans can’t handle a $400 emergency without borrowing or selling something*. So if you have anything saved at all - you’re doing pretty well. Now, let’s build on it. First, try to save $1,000 dollars. Then, try to build that up so you have three to six months of expenses on hand.
Building savings when you feel like you have nothing to spare can be difficult. There are many strategies that range from automating your savings to making lists before shopping, or cooking more meals at home. Many people even look to ridesharing, potlucks and selling or swapping goods. Once you have your savings and essentials down, you can start to live on last month’s income.
* - U.S. Federal Reserve Report on the Economic Well-Being of U.S. Households in 2015