I've been a freelance writer for seven years, so no one knows better than me the feast or famine cycles of an irregular income. Truly, one month you're flush with cash and the next, you're eating your last box of Kraft Dinner.
I actually talked about such things in this interview I gave on the lifestyle of a freelance creative. Yes, I know what I speak of, and I know how hard it can be to save money when you're unsure what day your next paycheque will come and whether it will be enough to sustain you, or pay your bills.
How can you save money when survival is still your first priority? Personally, I'm still trying to figure that one out, so I went to the experts for help.
Automate Your Savings
We wrote an article previously on How to Automate Your Savings, but it was geared towards the majority of people who receive a regular and predictable paycheque. If you're a freelancer, it's still recommended that you automate your savings, but just do it in a slightly modified way, while keeping certain things in mind.
Ramit Sethi, best-selling author of I Will Teach You to Be Rich, says that you first need to assess how much money you need to live on at minimum. Then, you need at least a three-month savings buffer before you do any investing. (This comes from any money you would have invested.) In months when you are flush, any extra money also goes into savings.
Once you have that three-month cushion, you can automatically transfer funds into investments, but keep contributing more to your savings account to cover those months when you aren't doing so well. Sethi also recommends using YouNeedABudget.com as a planning tool when you have irregular income.
Automate Your Debt
Bankrate.com takes the idea of automation to the next level by recommending freelancers automate their debt as well. Of course, most people already do this by sending out automatic bill payments that work with their schedule.
"As a freelancer, it's recommended you pay off your debt, particularly credit card debt, first and, in a way, you are also saving by doing that", according to Peter Bielagus, a financial adviser and author of Getting Loaded: A Complete Personal Finance Guide for Students and Young Professionals.
“You're saving by paying that debt down. If you have $1,000 earning four per cent (in a savings account), whereas your credit cards are losing 18 per cent, then I'd much rather you pay down $1,000 on your credit card,” Beilagus told Bankrate.
Concerned about Automation? Set up Reminders to Save and Invest
If you're at a point where automation concerns you because it could send you into overdraft protection, MoneyManifesto.com recommends giving yourself little reminders to save and invest instead of automating your savings.
Set reminders on your phone or digital calendar, save and invest as soon as you receive your cheque or invoice your clients, or save and invest on the first of every month. If you still find yourself coming up short, that's when you can dip into the buffer income you built up over three months. Plus, you should always have some kind of emergency fund over and above the buffer, so you can use it to equalize a really bad month, if need be.
Try to Generate a Short-term Income Stream
In order to avoid these periodic shortfalls that happen as a freelancer, you can also try to find short-term sources of income. Investopedia recommends having a stockpile of items to auction on Ebay for quick cash or having an ongoing contract with a short turnaround time to generate some fast income. Try to make sure you know what your next month's income will look like by the middle of the current month, so you always know what income targets you need to hit.
Budgeting is Crucial
You'll never be able to save if you don't know how to budget, so make sure you are living within your means and not needlessly overspending. Always hustle and make as much money as you can because you never know when a client may be lost or an invoice gets delayed. Stay disciplined in your spending and saving and you should be fine.
Weather the Storm
Hopefully, these tips will help all those independent freelancers and entrepreneurs get over the hump during their down months. Maybe they'll even generate enough savings to retire one day. This way, they'll be able to focus on the work they love and not be so stressed over money constantly. At Bargainmoose, we believe everyone should be given a shot to save, regardless of how they choose to generate income. While we wait for certain industries to line-up with the current standard of living, we hope that these suggestions will help you get by and focus on whatever you do best.
If you earn an irregular income, how do you make saving work? Tell us in the comments.
Photo credit: Ken Teegardin