Freelancers must learn to budget for irregular income

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TORONTO – When Jasmine Williams first became a freelance writer a few years ago, one of her biggest challenges was dealing with her inconsistent income.

Williams, a 28-year-old content marketing consultant in Toronto, went from a bi-weekly paycheck to an irregular payment, sometimes at the start of a project and sometimes at the end.

“When I started out, I didn’t have big contracts. Maybe I was doing an article here or there. Not knowing when you’re getting paid can make budgeting really difficult. It was hard to know how much money I would have in the bank, ”said Williams.

For freelancers, temporary workers, and contract workers, it can be difficult to find a sense of financial stability when payments are irregular.

“There are a lot of us in this field who are living boom and bust life. You have a very good month and when it’s a very low month you eat 1/8 of the cheaper food 3/8 and you often top up from a credit card or a source of debt ”, a said Chris Enns, certified financial planner at Rags to Reasonable, who often serves clients with fluctuating incomes in the creative industries.

For workers without a regular paycheck, creating a budget can help eliminate some of this financial instability and ensure that they don’t go on with every job or feel guilty for every penny spent, a declared Enns.

When working with clients on a budget, Enns always starts by asking the question, “What is your money used for?”

“The question of why is really important because a lot of people have trouble budgeting. For many it is not a fun exercise, ”he says. “But, it’s about how to make money, which is not a barrier between me and what I want, but a way of speaking to the world.”

The next step is to look at your spending, which should go beyond just estimating the absolute minimum amount required to stay afloat. Instead, it should be an honest review of the fixed bills and other expenses that will arise during each month or during the year. “Sparse expenses like gifts, clothing, and annual subscriptions are more likely to strain your budget and derail the whole thing,” Enns said.

Enns knows that most people aren’t going to dig into the last six months of their bank statements, so he suggests they try to make good estimates when budgeting instead.

“You’re not going to get it right the first time. It’s a moving target. So just put a number on it, then live your life and see if that makes sense. I think the bad news is, it’s not something you can finish in a weekend and never think about again. It’s a job.

Enns said it’s also important to create a buffer, like a few months of cash, to help pay for expenses if it’s taking a long time to get paid or you’re in a slack period. Many people think of it as an emergency fund, but Enns said the term can sometimes make people hesitate to dip into their savings.

People are struggling to find permission to use their emergency fund, he said, because the word “emergency” makes them think it can only be used in extreme circumstances. “You can call it whatever you want, but you have to give yourself permission to use it all the time because you have to use it all the time,” he said.

Before Williams became independent, she had about six months of expenses stored in her emergency fund. “Now every month I put a portion of my income into this account so that if, God forbid, anything happens to me, I know I’m safe,” she said.

What also helped Williams with budgeting was maintaining a business and personal account. Williams’ business account automatically transfers a fixed income to her personal account every two weeks, so she essentially pays herself a salary.

“I find that this is how I can control my spending. Once you get a huge deposit it can be exciting and you might want to spend it or splurge. But, keeping everything in this business account and only paying me a fixed amount helps me live below my means. That means I still kind of have a float too, ”she said.

Williams also restructured his business in a way to get better cash flow. She typically charges a 50 percent deposit so she doesn’t wait weeks or months for a huge paycheck. For larger projects, it also accepts credit card payments, which can be faster than wire transfers or checks.

“Sometimes people may not have $ 2,000 or $ 4,000 in their bank account. If they are business owners, they probably also face the same cash flow issues. So being able to accept credit card payments makes a difference, ”she said.

Williams, now in her fourth year of business, has a much better understanding of how much she needs to earn per month and how much she will earn. She even created a project tracker for herself so she can track her income for the year and see at a glance what she is doing, especially with longer term projects.

“Having goals is important,” she added. “When I started I was just trying to make as much money as possible. Now I understand what I can typically earn in a year and a month, and I know what I need to do to reach my goals. Overall, I find it helps to have a more consistent income and budget.

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