As you probably know, I absolutely love answering reader questions.
Well, today’s reader question comes from Noreen of New York City.
Here is a summary of Noreen’s questions and comments:
“What advice do you have for freelancers and individuals with varied incomes? As a model, my income can vary drastically depending on the week. I don’t make a ton of money in my business quite yet, but I do want to set up automatic withdrawals. How do I get started building my fortune when I can sometimes invest $1,000 per week and other times nothing at all? Freelancing is a growing trend, so I’m assuming that many of your readers with unpredictable income wonder how they could improve their savings strategies.”
3 Ways Freelancers Can Set Themselves Up for Success
First of all, I have never actually been a freelancer. On the flip side though, I spent many, many years with a low and often unpredictable income. When I first started in this business, I made almost nothing. In fact, I made just $856 during my third pay period as a financial advisor….and that was for the entire month!
Yes, we only got paid once per month. I’m sure you can imagine what a struggle that real-life budgeting experience was.
Fortunately, I had several factors working in my favor. And, truth be told, anyone with a fluctuating income would benefit from following my lead.
I didn’t know everything (and I still don’t), but I did do some things right.
So, how can you improve your finances as a struggling freelancer?
Here are three solid tips to follow:
Tip #1: Keep your expenses in check.
If you’re a freelancer with a fluctuating income, the best thing you can do for your finances is keep your expenses in check. It’s easy to want a fancy apartment and a new car, but you have to ask yourself if you can afford it.
Trust me, money disappears in a hurry when your “wants” grow faster than your income. If you eat at restaurants all the time, buy new clothes every week, and spend money on non-essentials every day, you can blow through cash faster than you realize.
The only reason I survived during my lowest earning years was because I kept my expenses low – real low. For example:
- I had roommates. When I first got started in my career, I shared a house with three buddies from college. By splitting our housing costs three ways, we were all able to save more and spend less.
- I avoided car payments. I have a blog post where I talk about the paid-off 1998 Chevy Lumina I inherited. It was a total “grandma car,” but I didn’t care because it didn’t cost me a dime. I drove that baby as long as I could, and it made a huge difference in the long run. If you can avoid car payments, you’ll be much better off.
- I cut out the crap and lived within my means. Even though I didn’t earn a lot, I was able to stretch my income pretty far. But this is only because I cut all the crap out of my life and never spent more than I made. I recognized I couldn’t’ afford to eat out, so I didn’t. I couldn’t afford to go to happy hour, so I stayed home. And even though I wanted one so badly, I couldn’t afford a flat-screen television like the ones my friends had.
As a freelancer, you might feel like you can’t get ahead. But trust me, you’ll be a lot better off if you can keep your expenses in check as you build your career. Also remember, none of this has to be permanent. As you earn more over time, you can budget for more of the things you really want in life.
Tip #2: Look for trends in your income that can help you budget.
If you’re struggling to find some consistency in your financial life, it can help to look for ongoing trends in your income. Look back at the last six, twelve, or eighteen months to come up with an average income for that time period. Once you figure out your average earnings for each month, learn to live on around 80 percent of that and pocket the rest.
If you’re living with an unpredictable income, you need your good months to make up for the bad. As a result, having cash on-hand will be the key to your success. If you can learn to live on less during good months, you’ll have extra cash to cover your expenses during the bad ones.
Learn to live on less than your “average income,” and save the rest. Over time, this can help you overcome a lot of the stress that comes with a fluctuating income.
Tip #3: Start investing small sums of money.
While it’s easy to become overwhelmed by the idea of investing your money, it’s perfectly okay to start small. The most important thing, however, is to get started in the first place! Even if you only invest $50 per month in a brokerage account or Roth IRA, it can add up quickly.
Most people assume you need thousands of dollars to get started. Because of this false notion, they become paralyzed and do nothing instead.
This is a huge mistake, and it’s also one of the most common. By investing even small amounts, you can grow rich over time. The key to letting small amounts reach their full potential is getting started right away.
Let’s take a look at a few examples:
Let’s say you can only afford to invest $50 per month right now. If you did that and only that and earned 8 percent, you would have $75,000 after thirty years.
Now, we’re talking!
As you can see, it doesn’t take a lot of money to get the ball rolling. The key to growing wealth is making consistent investments over time. Also, you can’t use this strategy to your advantage if you don’t get started. So, get started today.
Bonus Tip: Increase Your Income
These are my main suggestions, but I also have a bonus tip.
Here it is: As a freelancer, you should focus on finding your “unique ability.”
Dan Sullivan, the founder of the Strategic Coaching Program, came up with this idea.
While each person’s unique ability is different, everyone has one. According to Sullivan, your unique ability can be described as the one thing you love to do that you could do 24 hours a day and seven days a week. Most importantly, you can get paid very well to do it.
Make sure to operate in the realm of your unique ability as much as you can. As a freelancer, you have a certain amount of control over your income. But if you’re spending a lot of time on work that is outside your unique ability, you might be losing out on higher pay. By focusing on what you’re most passionate about, you earn potentially earn more money over time.
And remember, the more money you earn, the easier it is to invest small sums of money. Plus, you can boost the amount of money you invest even more without harming your other financial goals.
To wrap things up, freelancers should keep their expenses in check, look for ways to stabilize their income, and begin investing in whatever capacity they can. And if they want to take their income – and their savings – to the next level, freelancers would be wise to zero in on a unique ability that can help them earn more.
Being a freelancer isn’t easy, but it can be rewarding. And yes, you can absolutely get rich with a fluctuating income as long as you make the right moves early and often.
How do you thrive with a fluctuating income? What tips would you add?