Self-employment naturally brings along a greater independence and flexible working hours. However, it also comes with increased volumes of irregular earning abilities. From real estate agents to commission sales people, contractors, temporary, casual workers and several other occupations, these individuals fall in the same boat as small business owners in having to deal with irregular incomes at different times.
Today, we help explain a handful ways to help you deal with this.
The biggest starting point in fighting irregular incomes involves your mastering the art of budgeting. In fact, overcoming your irregular incomes amounts to a key development in your financial management abilities, so always take a step back and budget for your expenditures.
There arises a problem here. Budgeting is more effective when you know how much you’ll make, which is not the case here. So how do you budget when you don’t know what your income will be? A complicating factor is payment of taxes. Even when cash is tight, remember to not spend all of it in the hope of getting some more. Besides your pressing need for money, you ought to set aside an amount that will take care of your tomorrow.
Dealing with uncertain or irregular income requires a high level of expertise in financial management. However, we all can master the one crucial principle necessary for successfully manages our finances: Always separate your income into three – that is business income, personal income, and a provision for tax.
To avoid being lured into unplanned spending, perform the separation immediately you receive your income. In fact, having different bank accounts for this separation is a great way to keep your spending instincts in check, and will go a long way to helping you master your money. From the established business income account, a proportion of income is transferred to the other two accounts on a regular basis. This way, you avoid spending most or all of your income.
Personal income needs to be a fixed amount so a personal budget can be prepared with a certain income. It should be set at a level that is based on the average annual income. The business income account balance will fluctuate each month and if it builds up to a high amount, extra cash can be transferred into the personal account as a one-off payment. Managing money in this way requires discipline but will help avoid business failure or having to revert to working on a salary.