HOW TO BUDGET and avoid debt on an unreliable income

HOW TO BUDGET and avoid debt on an unreliable income

Does setting your own hours and working on your own terms seem like a dream scenario or a possible debt nightmare? Both can be true when it comes to freelance or contract work. Yes, there are many perks, but there are also a few challenges to overcome.

The employment landscape is changing in Canada

If you were an employer, would you rather hire someone who can work from home and meet deadlines or someone whom you’ll need to pay benefits, vacation pay and take up space in your office? An increasing number of employers are choosing the latter.

Freelance and contract jobs now make up 40 per cent of adult jobs across Canada —  and they’re not just in writing and design. FlexJobs (a US job search site) found that freelancers are most in demand for jobs in health care, education, project management, computer and IT, and accounting and finance.

The pros and cons of freelance work

One upside to freelance work is the flexible work schedule, which can be appealing for any demographic.

  • If you’re the millennial or boomer with wanderlust, a portable job can fund your next travel adventure.
  • Stay-at-home parent? Save a bundle in child care costs by earning an income from home.
  • Lost your day job due to cutbacks? Freelance work can help fill in the gaps when you’re looking for permanent work. Or, it can fund your education if you need to return to school and re-skill as a mature student.

The flipside

 The “typical” nine-to-five job seems to gradually disappearing, but is that a good thing? Ending your work day at a predictable time gives you a chance to plan your personal time, unwind if you want, and at least enjoy your weekends.

Now, with the rise of contract work, social media and tighter deadlines, work expectations can bleed into your everyday life, making it hard to find a balance, especially in the gig economy.

Here are a few ways each demographic can be affected:

Gen Z and millennial grads – Most adults in their twenties have to hit the ground running after graduation. There’s only a short period of time to find an affordable place to live and a steady income before student debt payments begin.

If contract work is all you can find — which is the case for half of all millennials — it can take much longer to save up money for a mortgage down payment or first and last month’s rent, or to pay off student debt. The lack of full-time benefits and the need to prepare for periods of unemployment can mean you’re constantly trying to keep up financially.

Parents – With young children especially, expenses are high and your time is a hot commodity. Mortgage payments and bills don’t wait for payday, and an unpredictable income can seriously add to financial stress — or cause you to rely on credit cards to bridge the income gap. Which can result in additional debt. Plus, if you can only find time to work in the evening hours, you might be adding to your emotional stress as well.

Men aged 45 to 54 – These are considered the prime earning years, yet this demographic has the highest incidence of unpredictable income. Almost half of self-employed men, according to a TD Bank survey have unpredictable incomes, making it much more difficult to save for retirement and other life goals.

4 ways to deal with debt and budget on a roller coaster income

 Bills need to be paid and you need to eat. Here are some ways to survive when your income is less than predictable:

  1. Lynnae from Being Frugal suggests issuing a paycheque to yourself. If you know the average of your monthly income, set up two bank accounts. One to hold your variable income and the other to pay yourself twice a month. Make sure you’re still covering the basics such as adding to your emergency fund and paying off debt.
  2. Follow two budgets. Use one budget for higher income months and the second budget when your income is less. When your income is higher, it’s a good idea to boost your emergency savings to fall back on during leaner months.
  3. Say no to consumer debt! To avoid feeling like you’re always falling behind, stick to a budget and avoid turning to debt. If debt payments are eating up your income, use this calculator to compare your debt relief options or speak to a debt help professional.
  4. Gail’s Magic Jars – When in doubt, use a back-to-basics budgeting strategy from Gail Vaz Oxlade: sort your monthly expenses into jars. Some people benefit from visually seeing just how much they have to spend. This can keep you more accountable and make it easier to budget.

Whether you work a permanent position or survive on freelance work, it’s always a good idea to make frequent check-ins with your budget. And, if you’re paying off debt, make sure you’re not in over your head by testing your financial health from time to time.

How do you budget with an unpredictable income? Join the conversation on Twitter using the hashtags #FreelanceLife #WorkFromHome #SelfEmployed #DebtSolutions