Managing finances with irregular income can be challenging, as it can be difficult to predict how much money you will have from one month to the next. As a result, professionals are increasingly seeking more flexible and exciting avenues and exploring unconventional career options, taking the freelance or self-employment route.
However, this flexibility also translates to a lack of financial security because of irregular income. Having an irregular income at times can be very stressful since you no longer have the assurance of a paycheck at the end of the month. You may feel like you're constantly trying to balance your budget and keep track of your expenses, but it doesn't have to be that way.
This blog will explore some strategies for managing your finances with an irregular income.
So What do you do when you face a similar predicament? If your income follows a rocky path of good and bad inflows, how do you plan and manage your finances and ensure that your dreams are not compromised? How do you invest during testing times to save up in an emergency?
Handling finances with irregular income can be challenging, but it is not impossible. Let’s have a look at how you can go about it despite having a rare source of income:
A budget can help you plan for your expenses and make the most of your income. Be sure to include all your fixed expenses, such as rent and bills, as well as your variable expenses, like groceries and entertainment.
Creating a budget is crucial for managing your finances, especially when your income is irregular. You can create a budget by listing all your income sources and expenses. This will help you see where your money is going and identify areas where you can cut back on costs.
If you have a period when you have a higher income, try to save some of that money to use during leaner times. This can help you avoid financial stress when your payment is lower. It's essential to have an emergency fund to fall back on. This will help you avoid relying on credit cards or loans when your income is low. Aim to save at least three to six months' worth of living expenses.
If you're not careful, saving money can become a problem when your income fluctuates from month to month. That's why it's essential to plan and ensure that your savings account is up to date.
If you have an irregular income, a side hustle can help you supplement your income and provide a more stable financial situation. Consider starting a small business or taking on freelance work in your expertise.
Even if it's just an extra part-time gig at home (like blogging), this will give you some extra income and more time to focus on what matters: taking care of your future.
You may also want to know How to File ITR for Freelancer
If you have to use credit to make ends meet, pay your bills on time, and spend more than the minimum monthly payment to avoid accruing too much debt. If you're going to use a credit card, make sure you're using a card with a low-interest rate and generous credit limits.
When it comes to loans, make sure they are long enough to cover your expenses for at least two months. Finally, take the time to learn about your credit score and how it fits your financial picture.
Many resources, such as financial advisors and government programs, are available to help people with irregular incomes manage their finances. Feel free to seek out help if you need it.
In addition, consider seeking financial assistance from a non-profit organization or government agency. These organizations can help you with everything from housing assistance to food assistance.
An emergency fund is of the utmost importance when income is irregular, especially if you have a business or are a budding freelancer. There can be those unexpected expenses, large or small, which can take us by surprise.
Often these emerge from normal wear and tear that requires fixing or perhaps more severe, like an accident. At times it could be the health issue of a family member. It might be a case of job loss or some situation that keeps one out of employment temporarily.
However, for the days when you do well, ensure that 6 – 12 months of your monthly expenses are parked in an emergency fund like a liquid fund or a savings bank account, and don’t touch it till the time you need it in case of any emergency.
While an emergency kitty may help you create a backup when income is irregular, it may not be enough to keep your finances in place. That’s where asset allocation is equally essential.
Asset allocation diversifies your money across various asset classes such as equity, debt, gold, cash equivalents, fixed-income securities, etc.
As a person running a small business or a freelancer working from home, you need to make sure that you properly allocate your hard-earned money (the times when your income inflow is relatively well) into different asset classes to fulfill your long-term financial goals.
Investment is essential when you have irregular income because it can provide a steady income stream and financial security. However, when you have an irregular income, you may have months where you have a lot of income and others where you have very little. This can be unpredictable and make it difficult to budget and plan for the future.
Investing allows you to put your money to work for you, potentially earning a return on your investment. This can help to provide a more stable source of income, even during months when your payment is low. It can also help increase your financial security, as you will have a diversified portfolio that can weather economic downturns or other financial challenges.
In addition, investing can also help you to achieve your financial goals, such as saving for retirement, buying a home, or starting a business. You can work towards these goals and improve your economic well-being by investing consistently, even with an irregular income.
Overall, investing is essential when you have irregular income because it can help to provide stability, security, and a way to achieve your financial goals.
Freelancing or having your own business can bring rewards such as freedom, a higher quality of life, and paying attention to your finances. It can also be economically rewarding.
With sound financial planning, you can continue saving, investing, and channeling your hard money for a better future, even if you have an irregular income.
You should seek help from a financial advisor who can help you stay in the know about the market and chart out these important personal milestones that you wish to achieve as you grow older and move forward in life.