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A Freelancer’s Guide to Riding the Waves of Fluctuating Income

September 25, 2023
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For freelancers, the allure of independence and flexibility often comes with a challenge: fluctuating cash flow. In Wripple’s 2022 Team Up Survey, we found that 73 percent of freelancers rated consistent income as one of their top challenges. There’s no denying that when the work and the money are flowing, it can be exhilarating, but when you hit a dry spell, it can be incredibly stressful.

In this article, we delve into strategies for managing these cash flow fluctuations with the help of Peter Bourg, a financial advisor with Ashford Advisors.

Get a System

A well-designed system that’s automated is key. For one thing, it can help add predictability to an unpredictable situation. A structured cash flow system also gives you visibility to income and expenses that can help you to make informed decisions about money.

Peter finds that most people struggle with what to do as the money comes in – how much to save and where to save. The system he suggests is this:

Money comes into one big holding tank in one account, and we send money to two different sides of one’s financial life: the lifestyle side and the wealth-building side.

Lifestyle Side – Taking Care of Current YOU

This side allows you to not only pay your bills, but when something comes up in life, whether it’s a car repair or Johnny needs braces, you fund it from one of two accounts earmarked for those expenses:

  1. Fixed Expenses Account – these are set expenses that are the same every month. This includes things like your rent or mortgage, loans, insurance, and utilities. These expenses must be covered each month.
  2. Variable Expenses Account – these are expenses that can fluctuate significantly from one period to another. While many of these are necessary, they can be influenced by your habits, needs, or circumstances. This includes groceries, dining out, transportation costs, vacation, clothing, and gifts.

When money comes in, send it directly to these accounts automatically so you don’t have to think about it. How do you know how much to put in each account? Fixed expenses are easy. You can base them on your bills from the previous year, accounting for any changes.

For variable expenses, set a budget for recurring items like food and gas and list out all anticipated expenses and when they will hit. For example, holiday gifts in November, summer camp fees in March, etc. Divide that total by 12 months and be sure you deposit at least that amount into your variable account each month.

Wealth Building Side – Taking Care of Future YOU

The other side of your financial life is about building wealth – whether that’s for retirement, a large future expense like Johnny’s college, or those freelancer dry spells we mentioned earlier.

“The biggest thing is to make it systematic and automated, where you don’t have to think about it,” Peter notes.

There are many ways to build wealth (we outline five ways in this article), so it’s important to diversify and build a plan based on your needs. One thing Peter suggests for freelancers is a good old savings account.

“I think especially for folks that work in the freelance world where you might have some big months from an income standpoint, and then you might have to take a month off because you're looking for another opportunity, it's good to have liquidity and money saved up and accessible in a savings account.”

In essence, a reliable cash flow management system transforms the unpredictable nature of freelancing into a manageable and empowering journey. By putting a system in place, you can more easily navigate the peaks and valleys.

Need help with the financial fundamentals? Check out 4 ways freelancers can build a good financial foundation.

Interested in reading more from our financial planning series? Check out our other blogs:

5 Types of Insurance Freelancers Should Know About

5 Ways Freelancers Can Plan for Retirement and Build Wealth 

Peter Bourg is a Registered Representative and Financial Advisor of Park Avenue Securities, LLC (PAS). Securities products/services and advisory services are offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America® (Guardian), New York, NY.  Park Avenue Securities is a wholly owned subsidiary of Guardian. Ashford Advisors is not an independent registered investment advisor nor an affiliate or subsidiary of PAS or Guardian. Ashford Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. CA Insurance License #0I07706; AR Insurance License #10381689. No compensation has been provided by the adviser in connection with this interview. 2023-160810 Exp 9/25

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