Navigating irregular income as a freelancer feels like walking a tightrope. Some months you’re up, others you’re not. Let’s talk about creating a budget that helps you stay balanced.
Step 1: Calculate Your Average Monthly Income
Get a clear picture of what you bring in on average.
- How to Calculate: Add your income over 12 months, then divide by 12.
- Example: $60,000 a year? Your average monthly income is $5,000.
- Helpful Tip: Include all income sources, even side gigs, for accuracy.
Step 2: Separate Fixed and Variable Expenses
- Fixed Expenses: Regular bills like rent and car payments.
- Variable Expenses: Fluctuating costs like groceries and entertainment.
Pro Tip: Cover fixed costs first. During lean months, trim the extras.
Step 3: Plan for Taxes as a Freelancer
Set aside 25-30% of your income for taxes.
How to Calculate a Percentage:
- Identify the Total Income: This is the amount you earn.
- Choose the Percentage: For taxes, let’s say 25%.
- Calculate:
- Convert the percentage to a decimal: 25% becomes 0.25.
- Multiply that decimal by your total income.
Example: If your monthly income is $5,000:
- Multiply $5,000 by 0.25: ( 5,000 \times 0.25 = 1,250 )
So, you’d set aside $1,250 for taxes from your $5,000 income.
Step 4: Build an Emergency Fund
Aim for 3-6 months of expenses saved up.
- Example: Monthly expenses of $2,500? Target at least $7,500 in savings.
- Life Tip: Grow faster with a high-yield savings account, like Capital One’s 360 Performance Savings.
Step 5: Use Real-Time Budgeting Tools
Use apps like Mint, YNAB, and QuickBooks Self-Employed to track your finances.
- Helpful Tip: Use reports to fine-tune your spending and goals.
Bonus: Set Clear Income Goals for Success
- Example: Aiming for $60,000 a year? Keep track monthly to stay on target.
Step 6: Implement a Zero-Sum Budget
A zero-sum budget means allocating every dollar of your income. The goal is for your income minus expenses to equal zero.
- Start with Your Income: Use your average monthly income as a base.
- Assign Every Dollar: Ensure every dollar is assigned to expenses, savings, or investments.
- Adjust Regularly: Review and adjust your categories each month as needs and income fluctuate.
Why It Works: This approach ensures you're purposeful with your spending and saving, maximizing every dollar.
At Gig Wage, we understand the challenges of navigating freelance finances. Our flexible payment solutions are designed to support you, keeping cash flow smooth. Ready to take charge? Visit Gig Wage to learn more.
Additional Resources:
https://found.com/resources/how-to-budget-with-irregular-income
https://www.moneyhelper.org.uk/en/everyday-money/budgeting/how-to-budget-for-an-irregular-income
https://www.westernsouthern.com/personal-finance/navigating-an-irregular-income
https://focusok.com/master-your-finances-how-to-budget-with-irregular-income/
