The United States economy continues to perform well by most measures, but the shift away from traditional corporate jobs and towards part-time gigs and freelance work is evident.
Tens of millions of Americans work in the gig economy. Because the very nature of the employment is gray, however, the Bureau of Labor Statistics doesn’t even know how to categorize this demographic.
While there are certainly positives to flexible employment and being freed of enterprise shackles, financial stability isn’t one of them—especially when dealing with debt.
Let’s discuss some tips for budgeting efficiently and paying down debt with variable income streams.
What Do You Owe?
The first step to correcting the course of debt is to face the difficult truth of what you owe. Tally up each type of debt, the interest rate you’re paying, the length of the loan, and most importantly, the payments you’ve made in the last year. With this information, you can determine the trajectory of your balances based on your payment activity. Are you falling behind, treading water, making progress?
Budget Based on Lower-Earning Months
The hardest part about working freelance or part-time is that there’s no set amount of income to count on for life needs. Around four in five U.S. workers live paycheck to paycheck, half of which save less than $100 per month. Sheer irresponsibility creates some of these fates, but plenty of others struggle to budget due to fluctuating monthly income.
To escape this maddening cycle, it’s essential to budget conservatively, and by that, I mean assuming a worst-case scenario with your monthly income.
This may sound crazy, and it’ll definitely make for a tight budget, but over time you’ll be able to pay off more debt and build your emergency fund with the extra savings. You’ll also not have to worry stress about your next check as much because, in most months, you’ll be earning more than you budgeted to spend.
Keep your budget simple with the 50/30/20 budget, which allocates half your income to needs, 30 percent to wants and 20 percent to savings and debt repayment.
Give Every Windfall a Purpose
Each month presents myriad savings opportunities regardless of what income bracket and spending behaviors we fall within. Every windfall will seem impressive, but they add up by month’s end.
Any time you come across money outside of your regular income, you have a choice: splurge or save? Whether it be a large tax refund or a small cash-back rebate, every dollar can get you closer to financial freedom.
The best way to use windfalls to benefit your situation is to follow the debt snowflake repayment method. The snowflake approach focuses on banking savings throughout the month and contributing them immediately to debt instead of via one large payment.
Don’t Neglect Savings and Retirement While Paying Down Debt
Many people believe that they can’t build an emergency fund or save for retirement when they’re deep in debt. Putting money toward anything other than debt will only extend the time in debt, right? Yes, but the long-term growth of investment contributions will outweigh some of the interest you’re paying in the interim.
If you have various high-interest credit card balances that are sinking you financially, evaluating bankruptcy, or settlement options through providers like Freedom Debt Relief, might be better strategies. In all other cases, aim to put away at least 5 percent for both savings and retirement.
Maintaining a lean budget and using every dollar that comes your way effectively will make a significant difference to your financial situation in the short-term. To be successful over the long-term, you’ll need to adjust your mindset about money. You’ll need to become more frugal.
Make no mistake, frugality is not the same as cheap. Instead, it’s about being resourceful with our money and factoring our time and convenience into the overall cost. It’s a mental mindset that benefits far beyond the balance sheet. Check out r/frugalto dip your toes into the frugality movement and see what elements you can apply to your lifestyle.
Getting ahead financially with an unpredictable income is tough, but it can be done with the right plan and mindset.