How To Plan Your Finances When You Have Irregular Income?

Millennials have inclined towards freelancing in recent times. There is a shift of mindset amongst the people who previously viewed the freelancing career to be insecure. With the advancement in technology, youth are looking for more unconventional as well as flexible career options. Freelancing comes with the freedom to work from anywhere, anytime. However, such careers do not provide a fixed paycheck every month. If you are in the initial stages of a freelancing career, it can be very stressful due to a lack of income security. 

Draw a Budget using your average income

One can calculate an average monthly income of the last 2-3 years. Once you arrive at an average income amount, you can plan your expenses and savings accordingly. In case you have to curtail your expenses or are not able to save a sufficient amount for short term and long-term goals, you might consider earning an extra income source to support your expenses and savings. 

Individuals with irregular income can plan to have two budgets – one for good times and the other for cold times. This technique can help to ease your spending in the months of good income and vice versa

Draw a Budget of monthly expenses

Once you create a budget, make a list of the average monthly expenses. Ensure you cover everything starting from your phone bills to groceries, entertainment expenditure, eating out expenditure, etc. To be accurate in your calculation, you can derive this figure from the last few months’ bank statements and credit card bills. 

Create an Emergency fund

Having an emergency is most crucial if you have an irregular income. As you cannot wholly depend on your monthly income to cover all of your expenses, you should continually develop a plan always to have an emergency fund with 6-12 months of your average monthly costs invested in a liquid asset. Also, one should invest an amount over and above in case of any medical emergencies. If you withdraw from this fund, make sure you again refill it with your next month’s income. Having the emergency fund in place will keep you sane and sorted in living a stress-free life. 

Covering health and life adequately

After you prepare a monthly income and expenses budget, the first step is getting good health and life insurance cover. Of these, medical insurance should be a priority. Term life insurance cover should be availed if you have dependent family members, or this cover can be availed later in life after marriage and kids. One should be vigilant while providing the right insurance cover considering all risk factors and not just getting lured by lower premiums.   

Start investing in SIP and lump sum in combination

Start a SIP of a minimum amount you will be able to invest in the months your income is the lowest. Starting a SIP will create discipline in your investing habits. Also, you can make a plan to invest a specific lump-sum amount in the months when your income crosses a threshold. This will help keep up with your emergency fund, optimise your investment and help in long term wealth creation. 

Asset allocation in your portfolio

A person with irregular income should develop some skills relating to investing as this can be a second source of income. After creating an emergency fund by investing in fixed income instruments, the next step is to create a portfolio across various asset classes like debt and equity. Make these investments according to your risk-taking capacity and short term and long-term goals.