Proven Solutions to Freelance Income Fluctuation

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If you’re a freelancer, you probably know the Lumpy Income Blues by heart. You know how it goes: One month, your income is $10,000. That’s a five-figure income! In just one month! Wow! At last you’re one of those people profiled in The Wealthy Freelancer!

Then, in the next month, where did all those lucrative clients go? Your income slinks in the door and the monthly total is all of…

…$783.

That’s the Lumpy Income Blues. And, sorry to say, it’s one of the occupational hazards of freelancing.

Now that I’ve gotten you down and depressed, here are some tips to help you deal with income fluctuation:

• Start reading. Yes, this means that you will be buying some new books. But, if your monthly income just slunk through the door like a kid with a bad report card, use your library. You’ll be able to buy books when things aren’t so tight.

  The First book I recommend is The Money Book for Freelancers, Part-Timers, and the Self-Employed by Joseph DAgnese and Denise Kiernan. They’re freelance journalists, authors and producers like a lot of us. The book starts out with their finances in a total mess. It ends with this husband-and-wife team being in much better financial shape. And you can get there too.

  Their best advice? Start by getting real about your finances.

  Their best advice? Start by getting real about your finances. Yes, they’re asking you to account for all that money you’ve been spending foolishly, all the saving you’re not doing, and those taxes that keep coming due.

  After you’ve gotten real, here’s a financial goal, courtesy of the authors: Save 30% of your income. Yes, I know. That’s a lot to save. But since you don’t have an employer withholding a portion of each paycheck for your taxes and retirement, you have to do it. So, put 10% in each of those two savings buckets.

  Savings Bucket #3 is for your emergency fund. Many financial gurus advise that you have six months of income saved up. This dynamic author/freelancer duo leans more toward having a whole year saved up. So, how am I working with this three-bucket system? Right now, I’m very close to meeting my emergency fund savings goal. I’m about to set up an automatic monthly funding program for my (I really hate to use this word) retirement account.

  True confession: The Retallicks are not good at retirement. We get bored too easily. And we keep coming up with money-making ideas that we have to act on immediately.

  Last but not least, I’ve figured out what to do about funding taxes, and that is to keep enough money in the bank so that when taxes are due, I can just write the check.

  The second book on my "recommend list is All Your Worth by Elizabeth Warren and her daughter, Amelia Warren Tyagi. At the heart of this book is a 50-30-20 system for allocating your money. Fifty percent goes to your must-haves like housing and transportation. If you’re above 50%, the authors advocate a tough love approach. As in, selling your car and riding the bus. Or, if that house mortgage is just too much, sell the place and rent something cheaper.

  Thirty percent goes to the things you want to have. And it’s very important to be stern with your wants because they have a way of sneaking over into the "must column.

  As for the remaining 20%, that’s for paying down that debt that’s stealing from your future. Or, if you burned up a good portion of your emergency fund like I did last year, this is the money you’ll use to fill the hole.

  The 50-30-20 system is what I used to fill my own $6,000 hole in less than a year. One of the best things I did was adopt a very nasty tone of voice while asking myself, "Is this a must or a want?

  It turned out that a lot of my musts were really wants. And I decided that they weren’t worthy of my spending money. Filling the hole was much more important. Tell you the truth, filling that hole became addictive. I found that I truly enjoyed life as an extreme saver. And I still do.

• Get creative. Isn’t it cool to get paid for your creativity? What’s even cooler is that you can extend your creativity to all areas of your life. Let’s say that you need to cut back on going-out expenses until you get your three savings buckets going. Or maybe you need to pay off that "steal from your future debt. Instead of spending so much in restaurants and bars, why not learn how to cook? The library’s full of cookbooks, the Internet is full of cooking blogs, and I’ll bet you have a culinary-minded friend or two.

  You could take your creativity to a whole new level, like the people Jeff Yeager profiles in his book, The Cheapskate Next Door. Like the couple living on a steel-hulled ship in Baltimore Harbor. The purchase price of their floating home? "A mere $18,000, says Yeager. Did I mention that this couple lives on a very modest income? Or you could emulate Yeager’s friend Clive, who built a barbecue grill from an oil drum, cement blocks, and bicycle parts.

  One of the benefits of monetarily-induced creativity is that you learn the difference between thinking and spending your way out of problems. I believe that the thinking skills are more valuable.

• Find kindred spirits. So, you’re increasing your creativity and getting your finances strong enough to survive the income fluctuations. Like any long-term project, this one’s a whole lot more fun with friends. Here are three places to find them:
  • In a spending-oriented world, savers need support. So, give the We the Savers blog a try, starting with its Declaration of Financial Independence.
  • Want to spend less, improve your cooking skills, and get answers to just about any financial question you could imagine? Head over to The Simple Dollar blog.
  • If you’d rather make things instead of buying them, there’s Make: Projects.

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