Have unpredictable income? Let's manage your money!
If you are a gig worker, freelancer, or running a small business, you are likely to have unpredictable income from time to time. But how you manage and allocate the money you make shouldn't be like that! Here are some tips to help you have enough to pay your bills, minimize debt and build savings in spite of having a fluctuating income:
Be aware of all your expenses
know how much you need to cover all your routine expenses such as housing, food, etc. Do the same for your business expenses.
Be realistic about your earning potential
Your chosen profession will influence how much revenue you can earn in a year. Project a realistic range on how much money you can generate, and if you want to be safe, define your strategies around the lower end of that range.
Keep cash reserves for lean months and surprise bills
It is better trying to set aside a sum of money, worth of expenses for those times when you're not earning very much, or encountering unexpected repairs, hikes in rent, or inflationary prices on supplies, for example.
Be systematic in how you manage paydays
On the basis of your expenses and financial desires, decide how much of every paycheck should be allocated to key areas: For example, X% for essentials, like food and housing, X% for taxes, and X% for savings goals, like traveling, buying a home or retirement.
Strategize retirement savings
Ideally, it is common to set aside at least 10% to 20% of every paycheck for retirement, but two years is the max if you can't afford to set aside money for retirement, after that, you need to find a way to make more money. Concerning taxing, different savings have different tax pros, and you can employ the differences to your advantage. A SEP-IRA, for example, makes tax-deductible contributions possible up to $61,000 a year, which may make the most sense in your high-earning years. And a Roth IRA offers tax-free growth and tax-free withdrawals for your after-tax contributions, which may make sense in your lowest-earning years.
Seek outside help
In your independent venture, even if you're not (yet) making a lot of money or crushing it with your commissions, it may pay to periodically consult with a fee-only tax and planning professional. They can be helpful to figure out a management strategy that stabilizes your finances in spite of having an unpredictable income.