With the emergence of companies like Uber and Wag, more and more people are supplementing (or replacing) their traditional revenue streams with freelance, contract or seasonal work.
In fact, a recent study from upwork.com revealed that 57.3 million Americans (36 percent of the workforce) earned some or all of their money through freelance activities in 2017. That number is only expected to rise as more and more millennials embrace the flexibility and freedom of the “side gig”.
And while there are many perks to contract work, there are a few pitfalls too. From fluctuating income to saving to tax concerns, navigating these new waters can be tricky. We’ve put together a few ideas on how you can successfully budget when you can’t predict when and how much you will be paid.
Maintain multiple bank accounts. Setting up multiple accounts, each with a specific purpose, is one of the easiest ways to manage irregular income. Think of them as virtual envelopes where you can prepare and plan for upcoming expenses such as taxes, needed computer or software upgrades or even an industry conference you’d like to attend.
Utilize merchant services offered by your bank. Banks such as Southside offer exceptional services designed to help small businesses thrive. And, as a freelance or contract worker, you are your own small business. You can easily add the ability to process credit and debit card transactions, expand your payment options and have funds electronically deposited directly to the account of your choice. These convenient services free up your valuable time, allowing you to pursue more clients and potentially take on more work.
Invoice quickly and efficiently. Never knowing when you will be paid is the single biggest stressor of contract work. By being diligent and thorough in your billing, you are taking ownership of this critical step. Make your terms and conditions clear and consistent and then communicate them to your clients. Many invoicing systems allow clients to submit a payment directly to your bank account and send out payment reminders at consistent intervals.
Pay yourself a regular salary: One of the many reasons to set up multiple bank accounts is that it makes it easier for you to set aside a percentage of each invoice for a specific purpose. For instance, setting aside 25% of each invoice to your tax account. But it’s also important that you pay yourself as well. Schedule a consistent weekly or biweekly transfer from your business checking account to your personal checking account. Consider it your paycheck! By creating this predictable payment rhythm, you should be able to alleviate the stress of waiting to be paid, and you’ll have consistent income whether your freelance work is trending up or down.
The bottom line? More and more people are earning part or all of their income through freelance or contract work. Use these simple steps to help budget with an unpredictable payment cycle.