Are you among the millions of Americans who reconstruct a living by freelancing , contracts, or walking side hustles?
The so-called "gig economy" has highlighted a growing class of workers who do not collect a permanent guaranteed salary from a single employer.
Maybe they run an Etsy shop while bartending on weekends. They could exploit a solo company hiring a photographer or graphic designer or writer or pastry. Maybe they work seasonally as a sailing instructor or street artist or repairperson bike.
The self-employed can have more autonomy than their counterparts traditionally used, but their wages are often sporadic, which may create additional challenges for budgeting.
Here's a look at five strategies for living on irregular incomes.
Keep head down
independent workers must get a handle on their needs monthly :. the bare minimum of money they need to pay the rent or mortgage, groceries, car payment, and utility costs
hope is that they will do much more than the minimum, but keeping in mind the number should help motivate them to reach this threshold.
maintaining low overhead by living with roommates, driving a used car, or buying private label food means there is less chance of having to pay for these necessities on credit if work slows.
conversely, some may argue that having a more expensive car payment or mortgage motivates stirring self-starters to earn that money. Only you know if you're the kind of person who would be motivated or stressed by setting a higher goal.
Stash extra money when you can
According to industry, the self-employed may feel subject to periods of feast or famine. One month they might collect a big juicy check for a lucrative project consultation, but the next month could be much thinner once the project ends.
During the summer, a rescuer could be raking in the dough, but earn very little the rest of the year. During times of celebration, it might be tempting to splurge on a new laptop or weekend travel.
But it's a good idea to set aside some of that money to cover living expenses when work slows.
The other reason to maintain a cash cushion is that, unlike employees who vacation or sick leave, most self-employed workers are not paid when they work unpaid.
another approach to this, especially with seasonal work, is to divide the money you earn in 12 and only "pay yourself" one twelfth of that money while you leave the rest in a savings account.
Stay on top of invoices
Sometimes erratic cash flow is inevitable. the authors, for example, can get a four, five, or even six figures book in advance and keep it on until they start collecting royalties or land another concert.
However, sometimes the lag time between checks is due to a lost bill or a misunderstanding of the terms of payment. Make sure you and your customer or client agreement to clear payment conditions and monitoring quickly in case of late payment.
Create financial guarantees necessary
employees with a regular paycheck often have a pension plan, health insurance and other guarantees offered by their employer.
most independent workers do not. This highlights the importance of buying your own health insurance and creating a retirement account like an IRA September or 401 (k).
Depending on your situation, you can also consider buying life insurance, disability insurance or errors and omissions insurance.
plan for tax time
self-employed workers may be able to deduct business expenses such as their home office or computer software that is needed to perform their work.
But many of these workers do not have taxes levied on income derived from their customers or clients, as regular staff members do. So they might be in a bad surprise comes tax time if they are not set aside enough money to cover their tax liability.
One way to avoid this problem is to set aside a percentage of each paycheck into a separate account and pay quarterly estimated taxes to the IRS.
Here's a look at other tax tips for self-employed.
self-employed, tell us which strategies have worked for you! How did you deal with irregular income
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Credit: Petur via photopin cc
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