If you’re a contract worker with inconsistent income, you know how challenging it can be to budget. As a freelance writer, I can’t always predict how much income I’ll make every month. I have some clients who want weekly or monthly blog posts and others who only need my help for a short period of time.
Because of the number of one-off projects I complete, my income can vary. Some months I only make $2,500 or $3,000 if I’m low on assignments because I’ve slacked on marketing. But when my pipeline is full and the work is flowing in, I make more money and can really chip away at financial goals like paying off my house early.
If you’re a freelancer too, you know the struggle of budgeting when you don’t have a consistent monthly paycheck. To help you sort out your finances, I thought I’d share some tips on how I’m budgeting my variable income for 2022.
How I Plan to Budget My Variable Income for 2022
I’m lucky to have a fiancé who gets a stable paycheck every month, which affects how I’m planning to budget my variable income for 2022. My partner got a higher paying sales job this past summer, which has enabled us to live on one income. We can cover all of our bills and retirement contributions on my fiancé’s salary as long as we live frugally.
This makes it easier to budget my variable income because it’s mostly going toward savings, mortgage principal payments, and additional investments. I usually sit down with my fiancé once a month to figure out the best way to utilize my income based on our financial goals and upcoming expenses, such as our wedding and home repairs.
This year I hope to be able to put at least $2,000 per month toward making extra principal payments on our mortgage. I also want to deposit at least $1,000 per month in our savings accounts. We have a few different sinking funds for things like home repairs, a new car, and solar panels, which I want to contribute to this year. Any money that’s left over will either be invested in our brokerage account or used for incidentals like unexpected car or home repairs.
If you have a partner, living off of one income and saving the other can make it a lot easier to budget your variable income and build up an emergency fund. But I didn’t always have this option. Before I met and moved in with my partner, I had to cover all my bills (including rent in an expensive Boston suburb) on my fluctuating income.
Early in my career, I failed to budget properly a few times and had to ask my parents for help. But I was able to grow from those mistakes and figure out how to manage my money better. Here are some of the budgeting tips and tricks I’ve learned through trial and error.
My Best Tips for Budgeting on Variable Income
The main reason I had to ask my parents for help sometimes was because I didn’t have a big enough emergency fund. Most financial experts recommend that you have at least three to six months of expenses socked away in a savings account. But as a freelancer I think it’s important to keep at least a year of expenses in an emergency fund.
When you don’t have a stable paycheck every month, you need more money on hand to cover income gaps when you’re in between gigs. Having a big savings balance will make it easier to cover bills during slow months and give you more flexibility in the jobs you take. You won’t have to accept assignments that aren’t the right fit just because you’re strapped for cash.
It’s also helpful to have a few different budget spreadsheets instead of just one. I suggest creating multiple budgets to outline how you’d like to spend your money during higher and lower earning months. When times are good, you should allocate more money toward savings and investments to make up for slow periods.
Although you may feel flush with cash during your busy season, don’t let lifestyle inflation get the best of you. Remember that you may experience lulls in the future that require you to cut back your spending or even dip into your savings. Try to keep your fixed expenses like rent as low as possible so you don’t risk wiping out your savings and getting into debt during lean times.
If you don’t have a stable paycheck, what are your best budgeting tips for variable income for 2022? Share your insight in the comments below so we can all learn from each other!
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.
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