January went out with a bang for sure with all my kids home from school for seven straight days thanks to Mother Nature. Actual image of me tonight:
So glad I got my hair cut when I was in NYC recently.
Speaking of ending with a bang, the hubs also got paid on the 31st for about eight weeks of work.
As some of you know, 2018 was a big transition year for our family with a move to a house a mile and a half from our previous one—rightsizing!—and job and career changes all around. While the road was a little bumpy, I can’t say I regret anything—mostly because I don’t tend to look back 😆. Full speed ahead, people—we need the momentum! Certainly over the last seven days, I have been grateful for the flexibility our choices have afforded us.
That said, said choices also require a bit more planning on the cash flow front. Those of you who freelance for a living are likely familiar with the sometimes uneven income that comes with contract work. Instead of receiving a regular semimonthly or fortnightly paycheck as a salaried employee, freelancers invoice companies for their work and wait, like any other vendor, to be paid. Wait … and wait … and, occasionally, wait some more.
My husband is in the middle of one such contract and I can tell you, as much fun as it is to be surprised with a check that could buy a (used) car, it doesn’t actually make it easier to live beneath your means. If anything, you need to be more careful with your money. Here, then, are a few principles that will help those with “lumpier” income stay on top of their finances.
Turn freelance income into a regular “salary”.
One reason it’s easier to plan your finances around a steady paycheck is because most people’s monthly expenses are also steady. You may have discovered anomalies when you were tracking your expenses, but your core budget probably doesn’t change significantly from month to month. Even if you’re paid irregularly, as many freelancers are, you can structure your income so that it’s received regularly, to better match your expenses. One easy way to do this is to have all monies deposited into a separate savings account, out of which you pay yourself—i.e. transfer to your checking account—a steady, monthly “salary”. This works especially well if you are working for more than one company or have multiple streams of income. Before you can start this process, though, you need to …
Have enough liquid Net Worth to cover a few months of living expenses.
No one needs Net Worth more than the freelancer (and, apparently, the federal employee). Without a financial cushion to cover those first few weeks—or months—when you’re waiting to be paid, but still need shelter and food, you’d be hard-pressed to enjoy all the benefits that can come with being your own boss. Net Worth is also more critical for contract workers as there are generally fewer protections for them than there are for employees. Contracts can end abruptly, work can dry up, and unemployment compensation is unavailable.
Do the math.
Even the most financially savvy among us can have our heads turned by a lot of zeroes. Heeeeeey, that’s a lot of trips to California. Sure, you got a fat check, but how many hours of work does that actually represent? That’s one of the benefits of having, say, your contractor payments directly deposited into a separate account which, ideally, you don’t check that often. If you don’t see a big deposit, you won’t be fooled by it. No math required.