Overview

Freelancers and gig workers – members of the so-called precariat – are often precariously positioned with regards to their income, their job security or lack thereof, and their benefits or lack thereof. As the economy has, in many cases, shifted away from traditional employment, many workers, particularly Gen Z and millennials, are often faced with the need to cobble their income together from multiple and, at times, unreliable sources.

In this article, we will explore effective budgeting strategies for workers with a variable income, including freelancers and participants in the gig economy, given the unique challenges faced by these groups.

Strategy #1: Note Down All Your Income Sources

Being self-employed, freelancing, or putting together an income from multiple sources is like running a business, and every business needs metrics. Your metrics include all your various income sources. Noting down every income source throughout a typical month will help you determine your average monthly income, your budget, and alternatives when one of the income sources runs dry.

Strategy #2: Calculate Your Average and Baseline Monthly Income

It is all but impossible to establish a budget without knowing your typical monthly income. For that reason, document your finances carefully over an extended period. Ideally, you would document your cashflow on an ongoing basis. Then calculate the average income by adding up the income for a given number of months and dividing that income by the number of months. While your income may fluctuate from one month to the next, having an idea of the average will allow you to get started with a budget as well as planning for unexpected expenses or savings.

Strategy #3: Prioritize Your Fixed Expenses

Once you’ve established your average income, you can determine the amount of money you spend on fixed expenses and variable expenses. It’s important to prioritize your fixed expenses such as housing, car insurance, your phone bill, your Internet bill, and so on. Keeping up with your fixed expenditures allows you to keep the ship afloat and should be your number-one priority.

Strategy #4: Reduce Your Variable Expenses

Alongside keeping up with your fixed expenses, you may benefit from reducing your variable expenses. For example, if you’re used to buying coffee at large coffee chains, you can opt for brewing your coffee at home instead. Another example is ending your unused subscriptions or cancelling your unused gym membership and finding alternative ways to exercise. The principle remains the same: finding more affordable alternatives and reducing unnecessary expenses.

Strategy #5: Build an Emergency Fund

We all know and understand the importance of an emergency fund: life can always throw you a curveball, whether it’s a job loss or unexpected expenses, and for those who are unprepared, it can derail their entire life. Therefore, it’s extremely important to start working toward an emergency fund.

Ideally, you would save at least three to six months’ worth of expenses. While that might seem like an ambitious goal, even a small amount of savings set aside every week can result in significant savings over the long term. For example, if you set aside $10 every single week, you would have $500 set aside in 50 weeks. Alternatively, if you set aside $50 every single week, you would have $2,500 set aside in under a year. To build your emergency fund, start saving a sum every week, no matter how small, and build from there. Having that discipline will allow you to make progress over the long haul.

Strategy #6: Diversify Your Income Streams

As a self-employed worker, freelancer, or gig worker, you have a lot on your plate. However, you may want to consider diversifying your sources of income. As a freelancer, you can offer your services on various platforms (e.g. Upwork) or via interpersonal connections. You may take on part-time roles or remote gigs. You may also strive to generate passive income via investments or digital products like e-books. Finally, you can monetize your skills and passions via social media or selling art online. Navigating the supply-demand dynamic is an ongoing process for everyone, and there is no shame in adopting new income-generating tactics.

Strategy #7: Use Budgeting Apps

Nowadays, there is a seemingly infinite number of budgeting apps available for everyday consumers. For those who prefer zero-based budgeting – i.e. allocating every single dollar of your income to a specific purpose – you can try an app called YNAB. As soon as you get paid, you can allocate different portions of your income toward various categories of expenses via the app. However, it requires a subscription fee.

Goodbudget is another option. The app is free and based on the envelope-budgeting system, whereby you allocate money toward spending categories i.e. the “envelopes.” This app also has a premium version, which comes with a fee.

PocketGuard is an app designed for overspenders and shows how much you have available for everyday expenses based on your income, upcoming expenses, and savings goals.

There is a wide range of apps available, both free versions and those that require a fee, but it may be worth your investment if it means you are able to regulate your spending better over the long term.

Strategy #8: Regularly Set Aside Funds for Retirement

Building retirement savings is an important consideration for anyone, including those with a variable income. While your income may experience monthly fluctuations, it’s critical to set aside money for retirement via dedicated savings accounts like the Registered Retirement Savings Plan (RRSP). Even a small amount of weekly savings will accumulate over time. For example, $50 saved per week would result in $2,500 saved over the course of 50 weeks. However small the amount, it will compound and grow over time. Start with a modest savings goal that fits your budget and grow from there as your career expands.

Strategy #9: Maximize Savings During High-Earning Months

When you’re having a particularly good month, it’s important to capitalize on it. During your high-earning months, aim to set aside a larger portion of your income for the purpose of saving. You could put your money in an RRSP or TFSA account. You can grow savings and investments in your TFSA tax-free, while your RRSP contributions are tax-deductible. This will enable you to build a buffer and save for retirement.

Strategy #10: Design a Budget for Low-Earning Months

As a freelance worker, gig worker, or self-employed worker, you are likely to experience fluctuating income, which may result in some low-earning months. It’s important still to be able to cover your most important expenses during those months. Therefore, be proactive in designing a budget for the months when your earnings are not as high. Prioritize your non-negotiable expenses such as housing, transportation, and so on, while reducing your pleasure spending. You may not be able to save much during these months, so focus on the most pressing expenses.

Conclusion

The lenders we work with may approve applications from self-employed workers or gig workers. If you need help covering a cash shortfall between paycheques, consider applying for a personal loan online via OntarioCASH. We don’t check credit scores or credit reports during our simple and quick online application process.

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