Survive and Thrive, On a Fluctuating Income
As a full-time freelance writer, my income resembles the peaks and troughs of the Rocky Mountains. I have months in which I am flooded with cash and others where I am busy finding work.
Yes, it is the glamorous world of commercial writing.
If you are like me and live on a fluctuating income, you know how difficult it can be to manage your money. How can you possibly make a budget when your income fluctuates 50% or more from month to month? How do you plan your savings when you have no idea what you will earn next week?
I have been living in a fluctuating income for almost 6 years now and it was a huge challenge in the beginning, so I wanted to share some of my own tips and tricks for managing a changing income:
1. Make a pillow
First I put the most important tip, because my entire system is based on one thing: having an ‘income cushion’.
Having extra money reserved for the lean times is absolutely vital when you live on a fluctuating income. This extra money must be separate from your emergency fund.
To build this cushion, you must be disciplined. If you have a successful month, you cannot ruin everything during a trip to GriekeSmikeand or a new HDTV. You have to put part of it in your emergency fund and part in your ‘cushion fund’.
For example, if you earn $ 5000 a month and you make $ 6,000 a month, place $ 500 in your emergency fund and $ 500 in your pillow account. Keep adding these amounts if you have extra money every month, or even money left over.
I keep my extra money in my bank account, but many people find it useful to have a separate savings account for this extra money. Anyway, if you notice that money is burning a hole in your pocket, it is especially important that you channel it away to another account to reduce the temptation to spend it.
How much you ultimately decide to save is entirely up to you and your comfort level. I have two months of living expenses in my pillow. But again, this is not my emergency fund. It is vital that you keep these two separate!
2. Make a budget
It took me a while to figure out how to create a budget on my income.
Here’s what to do:
1) Add all monthly bills together. By bills I mean everything you have to pay to survive (for example rent / mortgage, utilities, food).
2) Add up all the bills that you pay quarterly or annually, and divide that number by four (for each quarter) and twelve (for each year). I have noticed that Mint.com is extremely helpful here.
3) Add the totals from the first two steps, and this is the amount of money you need each month to survive. These are your “Must Have” releases.
4) Add your “Wants” together. These are expenses such as going out, going to the cinema, holiday savings and gifts. These are the “nice-to-have” releases, but the ones you can use if you don’t need them. To calculate this number, you will receive a rough estimate of what you normally spend on your ‘Wants’ in an average month.
5) View your income in recent years. Find out what you get on average every month. Then get 10% -20% of the air. Being conservative will help you to avoid running out of money during the lean months. PersooSmikeijk I lose 20% of my income when I make my budget.
6) You now get a low estimate of what you earn every month. You also have two types of releases: the ‘Must Haves’ and the ‘Wants’. Your ‘Must Haves’ represent what you have to earn at an absolute minimum . These are the obligations that are not negotiable. However, your “Wants” do not necessarily have to be fully funded because you can go without them. Your ultimate goal should be to fully fund your “Must Haves” every month, ideally with money left over to finance your “Wants” at least partially, if not fully.
7) If you work as a self-employed person, don’t forget to budget your quarterly taxes! These must be kept in a company savings account until they are due.
3. Reduce expenses
The fewer expenses you have, the less money you have to earn every month.
If you have not done this yet, look at the “extras” in your budget. This can be your cable television, magazine subscriptions or expensive monthly trips to the salon. What could you cut away?
For me, reducing my expenses has eliminated a lot of stress from my life. For example, I have removed the TV from my household. Because I have to get less every month, I am less worried about my income.
4. Create extra income
Working as a freelance writer is completely unpredictable and that is why I try to bring in several income streams during the month.
What could you do to simply add some passive income for yourself? Some ideas are:
- Write and sell an e-book.
- Start an eBay business.
- Sell used books on Amazon.
- Buy a cheap house as a rental home.
If you work on commission or are a freelance or contract employee like me, then you know only too well what the “monthly scramble and stress” are that can go together with your unpredictable income. That is why budgeting and planning is so important! Yes, it can be quite a job, but when you begin to experience that sense of stability, which is the end result, you will be happy that you have put the time into it.
Do you have any other tips for surviving with a fluctuating income?
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