Many people choose to be freelancers because this can be rewarding. Freelancers have the ability to set their own hours. They also have unlimited earning potential. However, managing personal finance for freelancers can be difficult. Freelancers often have irregular income, but there are some things that you can do to manage it.
Set a Budget
You will need to list all of your monthly expenses. If you know how much your expenses are, then you will know how much you will have to make each month to get by. You should have one column for fixed expenses and another column for variable expenses. Fixed expenses include things such as mortgage, car payment, and insurance. Variable expenses include health and wellness, entertainment, clothes shopping, and food. Separating your expenses will allow you to see areas where you can cut the costs. If you can cut down on your variable expenses, then you will be able to save money and maintain your standard of living.
Save Money for Lean Months
If you want to know how to manage irregular income, then you will need to start by saving money. Surviving the lean months will be a lot easier if you have money saved up. It is a good idea to save 10 percent of every paycheck that you get. If you are single and do not have a family to support, then you should have three months worth of expenses in your savings account. You should have at least six months worth of expenses if you have a family to support.
Get Your Tax Situation in Order
Those who earn their income through freelance work are not going to receive a W2 at the end of the year. What’s more, they aren’t having their taxes automatically withdrawn with every paycheck. Throw in deductions and other factors and it’s easy to see the importance of tax preparation for freelancers. If you’re unsure about how to do your own taxes, opt for a tax filing service to help you through the process. This will ensure you don’t end up paying stiff fees and penalties due to a failure to properly file.
Pay All Your Necessary Bills First
If you have irregular income, then you may have trouble paying the bills some months. It is best for you to pay your necessary bills first if you are low on funds. This includes your rent, car payment, and utilities.
Limit Credit Card Use
Many people use their credit card when they are low on cash. However, it is not a good idea to run up a credit card bill. Credit card companies charge interest on credit cards. You will end up paying a lot more than what the balance is. Furthermore, credit cards will create an additional monthly bill for you. That is why it is a good idea to limit your credit card use. You can use your credit card to make small purchases. However, you should pay your credit card off every month. You will save money in interest. You will also be able to avoid going into debt.
Have Multiple Streams of Income
It is a good idea for freelancers to have multiple sources of income to rely on. If your primary source of income is reduced, then you will still be able to make ends if you have other sources. There are several ways that you can make extra money. For example, if you are a creative person, then you can make things and sell them on Etsy. You can also rent out extra space in your home. Additionally, you can write articles or tutor students in your spare time.
Irregular income is one of the many things that can make it challenging to be a freelancer. You will need to set a budget and start an emergency fund. You will also need to pay all of your necessary bills first and limit your credit card use. Furthermore, you will need to have several sources of income.