One of the hottest employment trends is workers taking the reins of their careers and choosing self-employment over a traditional 9 to 5 job. In the U.S., 57 million Americans are freelancing, according to a join report from Upwork and the Freelancer's Union. The World Bank estimates that 44 percent of the global workforce is self-employed.
Being self-employed offers perks like flexible scheduling and the freedom to pursue your passions, but there's one thing it doesn't always guarantee: a steady paycheck. When you're taking on freelance gigs, working as a consultant, or running an online ecommerce business, creating predictability in your budget can be more challenging.
That doesn't mean you have to give up budgeting altogether, however. These tips can help you map out a workable spending plan, even when your income isn't always consistent.
1. Set a baseline for spending
If you're trying to budget with an irregular income when you're self-employed, the first step is knowing what you need to earn each month to maintain a basic standard of living. That includes what you spend on:
▪ Rent or mortgage payments
▪ Utilities, internet and cell service
▪ Insurance (health, car, and homeowner’s/renter’s insurance)
With a full-time job, you'd plan your budget based on your paycheck. But when you're self-employed and don't have that predictability, planning based on what you need to earn makes more sense. It forces you to focus on what's essential to your budget. And if your income is higher than your baseline number, you can add non-essential categories back into your budget – like dining out, new clothing or travel.
That raises the question of whether or not you should be budgeting some "fun money" into each month. The answer depends on what your regular expenses are and how much you're making. If your income and expenses are almost the same, you may not have much left over for fun. In that situation, you'd need to work on raising your income or lowering your expenses to create some wiggle room. On the other hand, if you have enough income to cover your regular expenses, you may be able to budget $50 or $100 a month to spend any way you want.
- Leave room for savings
As you budget for fun, remember that you also need to budget for savings. An emergency fund is something most people need, but it's even more important if you're your own boss. An employer might offer paid sick or vacation days, but you don't have those perks when you're self-employed.
If your income fluctuates from month to month, focus on saving a set percentage of what you make, versus a specific dollar amount. In the months when your income is lower, you'll save less but you can make up for it in months when your income spikes.
Prioritize your savings goals. You’ll want to try to have enough money saved to cover your expenses for 6 months. After you've checked that off your list, you can move on to another goal, like saving for retirement.
- Average out your irregular spending
Generally, you pay expenses like your housing costs and cellular bill every month, but others may only come around quarterly, semiannually or annually. If your semiannual car insurance premiums are due in a month when you're struggling to make enough just to cover your regular expenses, anything extra could throw your budget out of whack. If you don't have any savings, you may have to use a credit card or loan to make up the difference.
As you create your budget, write down all of the expenses that aren't paid regularly each month. Total them up, then divide the total by 12 to get an average monthly cost. Add this to your baseline amount for monthly expenses. Every month when you pay your bills, put the amount you budgeted for the irregulars into a savings account that's separate from your emergency savings. That way when these bills come due, you'll have money on hand to pay them.
- Track your spending and bill payments
When you're self-employed and your income varies month to month, there's no room for error in your budget. You may know your baseline number for living each month, and how much you're saving, but it's important to keep tabs on the rest of your dollars and cents. Otherwise, you could end up wasting money that could be better used for saving or paying down debt.
It's equally important to be aware of when your bills are due. Missing a payment on your credit card, for example, could do serious damage to your credit score. If one of your long-term goals is to buy a home, a low credit score could make it more difficult.
Setting up bill payment reminders with your bank or creditors is a relatively simple way to stay on top of due dates. There are also a number of budgeting apps that let you schedule payment reminders and track your spending automatically by syncing up with your bank and credit card accounts. , for example, is a free and simple app that lets you plug in your self-employment income, track spending, schedule reminders and monitor your savings goals – all from your mobile device.
Review your budget regularly
One of the best things about being self-employed is having plenty of room to grow your income. But more money can sometimes lead to more spending. As your business or side hustle evolves, so should your budget. Remember to check in with your finances at least once a month to make sure you're staying on track with your spending and savings goals.
*All content provided in this blog is supplied by Rebecca Lake and is for informational purposes only. Barclaycard makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.
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