Creating a monthly budget when you don’t earn a regular paycheque is challenging. Nevertheless, the process is necessary if you want to ensure you have enough money available to get through the lean times. Here are some budgeting tips for freelancers, contractors and people who work on commission.
CALCULATE YOUR BASELINE
Check your financial records and bank statements and determine your monthly income for the last two years. Find the month where you made the most money and the month where you made the least. Also, calculate your average monthly income.
CREATE A BUDGET
To err on the side of caution, create a monthly budget based on the least amount of money you made in one month. List all your fixed and variable expenses and see if they fall within the income you made that month. If they don’t, it’s time to start prioritizing your expenses. Separate them into necessary and discretionary items. You first list might include:
• Rent or mortgage
• Utilities (water, electricity)
• Medical bills
• Debt repayments
Discretionary items might include your cable television package, dining out, entertainment and shopping for luxury items. Cut discretionary spending first if your budget won’t allow you to make ends meet on low-income months.
Make a plan for the extra income you earn. If you don’t have a plan for this money, you run the risk of blowing it on something you don’t really need or want. Your goal may be to save for your children’s education, buy a new car, beef up your retirement savings or pay off your student debt.
DIVIDE EVERY PAYMENT
Divide every payment you earn based on your monthly budget. For example, you may set aside 35 per cent of every cheque for rent, 15 per cent for loan payments, 10 per cent on savings, 15 per cent on transportation and another 15 per cent on groceries. This would then mean you can spend 10 per cent of your earnings on discretionary items.
BUILD AN EMERGENCY FUND
Make sure you put some money into an emergency fund every time you get paid. Having between three and six months’ worth of accessible cash in a bank account or TFSA will give you a bit of a cushion if your income decreases.
DEBT HELP IN OTTAWA AND THE SURROUNDING AREA
If debt payments take up too much of your monthly budget, D. & A. MacLeod Company Ltd. can help. Our licensed insolvency trustees offer debt assistance services and credit counselling to help you get your finances in order. For a free financial consultation at our Ottawa office or one of our six locations in Eastern Ontario, contact us today.