Nowadays, career paths have changed. There are a lot of people working in the gig economy as freelancers, content creators, project managers, product managers, and the like. With the rise in these seasonal opportunities to make money, there’s a need to learn how to manage your income if your earnings are irregular or you have a seasonal job that has both peak seasons and off peak seasons. In this article, I share some of the ways you can approach saving and investing with irregular income.
Why is Managing Irregular Income Hard?
1. You Don’t Know When You’ll Get Paid
As a freelancer, some clients take time to pay you after you have completed your task. Some may take a month, three months, half a year or even a whole year to process an invoice and pay you for the job.
2. Your Income is Unstable
Unlike someone who is on a payroll who expects a certain amount of money to hit their bank account every month, your income fluctuates. Some months you will make huge amounts of money that you will think of buying your dream car. In other months, you will make no money, that you will be negotiating rent with your landlord.
3. The Future is Uncertain
As a freelancer, making money today doesn’t guarantee that you will make money tomorrow. Making a high income in one month, doesn’t guarantee the same in the next.
How Do You Solve These Problems?
1. Have an Emergency Fund
Calculate the minimum amount of money you need to survive any given month. That money should be enough to cater for your most basic needs like food, rent, clothing, internet, and other necessities. Your emergency fund should be large enough to cover you for a period of 6 – 12 months.
2. Have a Sinking Fund
A sinking fund is a fund where you save for future known expenses. These are expenses that you anticipate that you will have to meet in the near future. These may include, school fees, planning for a holiday, travel, wedding. A sinking fund helps you save for these kinds of expenses early in advance.
3. Have Health Insurance
Health expenses can easily wipe your bank account and portfolio clean. This is because health at the extreme end can be one of the most expensive things in life. Hence having a medical cover to reduce the burden incase of anything is an added advantage.
The Runaway Fund
The runaway fund is the combination of your savings and investments. It helps you determine how long you can go without making any extra income in case anything happens and job prospects dry up.
Benefits of Having A Solid Financial Plan
1. You Can Sleep Better at Night
When you are assured that you can still cater for your lifestyle regardless of how work goes, you have a calm mind. On the other hand, when you are not sure where you will get money to pay for your rent and clear your bills, you life becomes one of financial stress.
2. Work on Your Terms
With a good financial back up, you aren’t desperate for opportunities, that means you can let go of low paying clients or clients who come with working conditions that you are not comfortable with like strict deadlines.
How To Approach Savings with Irregular Income
1. Avoid savings rules like save 10% of your income
As a freelancer or a worker in the gig economy, your income is irregular and so are your expenses. Hence it makes more sense to save more money during peak seasons, and save less or no money during off peak seasons. That’s why the best saving advice for you is, save more when you can
2. Cutdown Your Expense During Off Peak Seasons
When you are not earning as much, you don’t have the freedom to spend extravagantly. That’s the time to cut down on your unnecessary expenses.
How To Approach Investing With Irregular Income
1. Prioritize liquidity
Since you are a freelancer, there’s a high likelihood that you may be forced to liquidate part of your investments when your job prospects dry up or you are in urgent need of money. Hence holding onto illiquid assets like land may not be the best idea.
2. Buy Cash Generating Assets
To supplement your irregular income, income such as dividends from stocks, interest payments from bonds, or rental income from real estate properties would be good for you. It will help increase your income.
Pitfalls To Avoid
The biggest pitfall you can get yourself into with irregular income is debt. Loans require monthly installments to be made, hence without a regular income, you may be unable to meet your obligation to pay back your loan.
The best thing you can do with irregular income is to look for additional sources of income. More so things you can work on during your off peak seasons.