When you make the jump to full-time consulting, you’ll find your earnings may not be the same every month. You might have lean times during the winter holidays, but go gangbusters in the spring. After a while, you get used to it and you’ll be able to budget accordingly.
But how do you save when you have such an unusual cash flow situation?
- Add up your monthly revenues for the past 12 months
- Divide by 12 (this gives you the average)
- Build a budget around that average
- Dip into your emergency fund or use your line of credit during months where you fall below the average
- Top up your emergency fund during months where you exceed the average
So, let’s say that you had the following situation:
If you add all that up, you’ll get $36,900.
Divide by 12. That’s $36,900 / 12 = $3,075 per month.
So you should base your budget on monthly earings of $3,075 per month.
If, in February, you have a slow month, you can dip into your emergency fund. Then you can top it up with your March earnings.
I manage my finances pretty diligently and I always have an emergency fund to cover six to 12 months of expenses. That way, I never come up short of cash. What do you do to manage your consulting or freelance income?