After I mentioned coming up against some of my old money beliefs in a vlog, a lot of people came to me and asked how I deal with this kind of thing. It’s a valid question, because budgeting is good and well in times of a stable, secure income – but what happens if part or all of this income goes away, even temporarily?
Freelancers and other self-employed people have more experience than others of dealing with fluctuating streams of cash, but even those in permanent jobs can be affected. Unemployment, longer illnesses or otherwise challenging circumstances aren’t something I would wish on anyone, but they can and do happen.
In the following, I’ll give you an overview as well as a few detailed steps you can take in order to safeguard your living, and that includes your passions. I’m paying special attention to passions not just because this happens to be my area of expertise, but also because they’re often the first thing to fall by the wayside when things get tough.
Let’s dive in.
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It can happen to everyone
First of all, I want to invite you to take notice of this even if your income is stable. I hope with all my heart that you’ll never need to apply any of this knowledge, but having the tools and the ability to deal with eventualities never goes amiss, and as well, there simply aren’t any guarantees in life. Ask the people who recently had to flee perfectly normal lives in the Ukraine, who may have lost not only their livelihood, but their homes as well. Life can be unpredictable.
Those who are entrepreneurs or freelancers, know what I’m talking about in any case. Unless you’re in a particularly reliable industry, your income likely will fluctuate to some extent. In some industries, there are seasonal differences, others react to factors like world markets and the political situation. Again, it’s worth it to build the knowledge of what you’ll do if your income is suddenly much lower.
What needs to be in place
In order to sail through a sudden decrease in income, you need to prepare in advance. It’s the same as building yourself a shelter in the wilderness, in case it’ll rain – if you only start when the first drops fall, you’ll likely be soaked by the time your hut is finished! Therefore, it’s important to think ahead.
I’ll come straight out with it: You need to know exactly how much money you’re spending each month. Sorry, but that’s a must. You also need to create a budget. If you’re subscribed to Wild Spirits News, you’ll regularly get advice on the categories that should be part of your budget; for the full instructions, you could read money management books or consider my 1-on-1 Wild Money program which includes creating your own budget, tailored to your individual situation.
Here’s an abridged version. First, you need to track your spending for at least one month. Yes, it’s a pain in the neck, but it has to be done. Find out how much you’re actually spending. Then create different categories such as “house”, “bills”, “groceries”, “car” etc. One of the categories should be for “passions”! Another should be savings, divided into long-term savings or investments and short-term savings for larger purchases such as a house or a car.
The emergency plan to protect your budget
When I run into difficulties – and the last two years have been full of ups and downs, I’m not going to pretend they weren’t – I switch to emergency mode. This is why my Word document titled “Finances” contains more than one budget.
Your main budget should be based on your normal income and your regular expenses. As a freelancer or self-employed person with a fluctuating income, you should also have a budget in case your income increases. The easiest way to achieve this is by budgeting in percentages, rather than fixed amounts. That way, if you always save 20% of your income, the sum will automatically increase when you have a particularly good month in business or any unexpected windfall. Similarly, all other categories will automatically adjust.
Everyone, employed or self-employed, also needs what I call a bare-bones budget. This is the one you use when the shit hits the fan. It contains the absolute necessities, such as rent or mortgage payments and the non-negotiable bills, as well as the minimum amounts needed for food, provided you’ll shop only in discounters and don’t go to cafes or restaurants. Basically, this is the money you’ll need to not get in trouble with any debt collectors. Anything you don’t need to survive, such as clothes, books etc., gets cut out.
I can’t stress enough how important it is to know this number! This is your absolute minimum, and if you fail to reach it in any month, you need to take action immediately, even if that be getting a weekend job stacking supermarket shelves or waiting tables.
Protect your passions
Obviously a bare-bones budget won’t leave any space for your passions either. This doesn’t mean though that you shouldn’t do what lights you up during this month. If you need books, borrow from friends or a library. If you need materials, get creative – a client of mine whose passion is knitting had a bad month once and ended up asking her friends and the knitting circle she’s a member of, if anyone had any wool to spare. She got inundated with donations and ended up not having to buy any new wool for months.
You don’t need to become a hermit either. Simply meet friends at home rather than in a bar in town. If your passion is travel, take day trips to nearby destinations. You might even discover how much there is to see and enjoy close to your home.
Most of all, don’t compromise on the “three pillars” self-care, downtime, and passion time. Your mind and emotions need to be stable so you can recover as quickly as possible and start earning again, or look for new opportunities.
A bare-bones budget is a survival tool, not a punishment. It’s what makes you secure, and in the end, it protects your ability to live the life you desire to the full extend again as soon as your income picks up.