Now more than ever, due to the technological advances we have seen over the past few years, we are living in a world full of freelancers, independent contractors, side-hustles, and commission-based jobs. With these types of jobs come fluctuating income based upon work completed, instead of salary or hours worked. However, this doesn’t necessarily mean that your savings should fluctuate as well. Even with a fluctuating income, there are still plenty of ways to save, invest, and budget to meet all of your goals.
The first and best way to help allow you to save each month is to calculate your baseline amount that is needed for your monthly expenses. Once you have this amount down, this will help set your budget. Now, everything over this can be used to go towards investing, saving, or other discretionary expenses. One thing I would add into your “budget” is a monthly amount that you can commit to investing each month. We call this “the reverse budget,” or “paying yourself first.” Over the years, we have found that if you think of this as a non-negotiable habit, it will become much more consistent, rather than waiting to see what is left at the end of each month to invest. Typically, if one chooses the latter, investing does not happen.
In today’s world, there are plenty of budget and savings apps to help put this all together or help to systematize it. If you are working with an accountant or a CPA, they can also help get you on track and ensure your expenses are in line with the average monthly income you are bringing in.
Another tip to try is to stay a month or quarter ahead on expenses and only live on money from the previous month or quarter. Doing this will help you to keep a buffer or a cash reserve, so that even as you get close to the end of the month or quarter, you know that all of the income from the previous pay window will be there for you.
Additionally, build up a solid emergency fund. Fluctuating income can come in waves and, depending on your industry, it may be higher or lower depending on the seasons or amount of product you need to move to get paid. If this is the case, be sure to have a hefty emergency fund – at least 6 months and as much as 12 months – in addition to any big expenses you will have in the next year. Having this built up is going to remove a tremendous amount of stress because if you go through a month or two of low to no income, you know you still have cash in the bank to meet your needs.
Being a freelancer, independent contractor, side-hustler, or any other commission-based position has a lot of benefits. It allows you to set your own schedule and decide who you do or do not want to work with. It also puts all of your income making potential on you and you alone. Having a plan in place that will allow you to focus on your business and not have to worry about the money side of things will allow you to do better work. Doing better work will create happier clients, which in the end, should lead to more and higher income, allowing you to do and achieve all of your personal and financial goals.