Overview
As the economy has shifted toward more precarious employment situations, many workers are left with variable incomes. Due to the lower levels of job security, budgeting can be particularly challenging for many. In this article, we will explore five budgeting tips for freelancers, gig workers, and self-employed workers.
Tip #1: Track All Income Sources
It’s important to get a handle on where your money is coming from. List all your income sources in an Excel spreadsheet, whether it’s paying clients, gigs like food delivery or ridesharing, or passive income from assets e.g. e-books or investments. Seeing all your income sources in one place could help you make a more accurate estimate of your average monthly income, which will be tremendously helpful in establishing a budget.
Tip #2: Calculate Your Baseline Monthly Income
It’s a simple calculation: add up your income over, say, a twelve-month period and divide the sum by the number of months. This will be your estimate for a baseline income throughout the year, which you can use to develop a budget. It will allow you to estimate how much you can afford in terms of your housing, car insurance, home insurance, groceries, fuel, and other expenses. It will also allow you to gauge your room for pleasure spending.
Tip #3: Optimize Savings During High-Income Months
When your income for a given month is significantly higher than what you would typically earn, you would benefit from maximizing your savings and investments. Set aside any extra income into savings accounts like a TFSA or an RRSP. A TFSA allows you to grow your savings and investments tax-free, while your RRSP contributions are tax-deductible. Additionally, focus on building an emergency fund. Aim to save at least three to six months’ worth of expenses. Having that buffer will allow you to feel more safe and secure in case of emergencies like a job loss or car repairs.
Tip #4: Create a Custom Budget for Low-Earning Months
Due to the high variability in income month to month, you need to plan for low-earning months as well. Design a budget specifically for those months with a focus on fixed expenses and a minimization of pleasure spending. During these months, your most important priority is keeping up with the necessary expenses. Anything else should be put on the back burner until a higher-earning or average-earning month comes along.
Tip #5: Build an Emergency Fund
As mentioned in tip #3, it’s important to start building an emergency fund as soon as possible. This means setting aside a small amount of money on a recurring basis. For example, $20 saved per week would result in $1,000 saved over 50 weeks. Saving $50 per week would result in $2,500 being saved over 50 weeks. Given that half of Canadians are $200 or less away from not being able to meet their financial obligations, these sums of money could have a significant impact on your financial wellbeing. The simple formulas show that even small steps add up to large results given a sufficient period of time. Be patient, be consistent, and stick with your saving routine until you build up a sufficient buffer for emergency expenses.
Conclusion
The lenders we work with may approve loan applications from self-employed workers or gig workers. Apply for a personal loan online via LendProConnect. We don’t check your credit score or credit report during our simple and quick online application process. To monitor your credit health, sign up for Credit Verify. The registration process is quick and easy and takes place entirely online.
