Millennials are reportedly leading the way in the self-employment trend. Gone are the days of working office jobs; today’s employees are embracing working for themselves rather than taking on the standard “9-5”. While millennials may feel more empowered as their bosses, many find themselves in financial straits as they work to navigate earning a living wage while paying the bills. With the following tips, self-employed millennials can create the best budget for their lifestyle:
1. Create a Basic Budget
Budgeting is an age-old method anyone can use to obtain financial stability. To prepare yourself for a life as a self-employed worker, you need to create a functional budget that will allow you to live on what you earn. Start this process by putting together a basic budget that lists your expenses on a weekly or monthly basis.
Working for yourself has its ups and downs, and your budget should reflect this. For the best results, create your budget around the amount you earned during the lowest-paid month last year. It will help you to stay on top of your bills, ensuring that you have enough to live on regardless of how much money you earn in any upcoming pay period.
When putting together this budget, be sure to include all of your expenses. It should include everything from the weekly groceries and monthly wi-fi bill to the amount you’re putting into your retirement savings each month. As you go down the listed expenses in your budget, write down how much you will spend next to every item.
2. Build Your Six-Month Cushion
As a self-employed worker, you’re likely used to months of high- and low-income. To make sure these irregular earnings don’t take a toll on your financial stability, experts like Derby Advisors recommend building a six-month cushion. This cushion is an emergency savings fund that will guarantee you have enough money to live off of for at least six months. Though it may take time to put this fund together, it’s an essential part of budgeting as a self-employed millennial.
This pool of money can be life-saving during the slower months where you’re not earning as much money. With enough money in the bank to last six months without any additional cash flow, you’ll have enough time to make new occupational arrangements should any of your current gigs fall through.
3. Grow Your Savings
It’s easy to feel as though you’re not making any progress when you’re in the midst of a low-income month. However, this shouldn’t stop you from padding your savings. As a self-employed person, savings are the bread and butter of your life. After making the initial step to put money each month into a savings account, take some time to explore other savings options.
Once you’ve gotten a handle on how much to budget for essentials and your emergency fund, it’s a good idea to think about how to grow your savings as much as possible. Many self-employed workers choose to invest in stocks, properties, or high-interest savings accounts. In addition to these options for saving, it’s equally as important for self-employed workers to invest in their retirement.
While it may be challenging to put money towards your retirement outside of the traditional salary model, self-employed workers do have options for retirement. When working for yourself, you have the choice of contributing to an IRA, SIMPLE IRA, SEP IRA, or a Solo 401(k).
4. Save for Unexpected Expenses
Usually viewed as the bane of a self-employed person’s existence, irregular income is a fact of life when working for yourself. Once your bare-bones budget is in place, it’s time to put together a plan to survive the instability that comes with being self-employed. This plan should account for all unexpected expenses that may occur throughout the year. Everything from medical emergencies to unexpected home repairs should be considered when putting together this plan.
This plan will serve as a guide for your spending as it will help you prioritize what you spend your money on. While your initial budget will ensure that you have enough money for the essentials like food, rent, electricity, and the like, this plan will help you avoid the scenario of unexpected costs depleting your disposable income.
5. Plan for Big Expenses
Anyone new to the life of the self-employed may fear that they’ll never be able to spend as freely as someone with a traditional job might. While saving enough money for larger expenses like a vacation or a downpayment on a home may seem daunting, it’s not impossible. With a bit of patience and a clear-cut strategy, you can enjoy the same quality of life you might if you had a wage or salary job.
If you hope to spend more money on larger expenses, it’s best to start planning months in advance. Start this process by adding these big-ticket items to your budget. By making it a point to set aside money for these items every month, you’ll find that before long, you’ll have more than enough money to make your goals a reality.
6. Revisit Your Budget Regularly
The secret to making a budget work is to make adjustments as necessary. As a self-employed millennial, you’ll never reach the financial security you hope to achieve if you aren’t actively working to reflect your spending and saving habits in your budget accurately. As you take on new clients and grow more accustomed to saving, it’s essential to make changes to your budget.
According to the team at Derby Advisors, it’s best to make updates to your budget every four-six paychecks. This way, you’ll be able to make any changes based on how much money you’re earning right now and any new recurring expenses.
As more and more millennials decide to go into business for themselves, they should continue to use the timeless method of budgeting to promote financial stability. If you’re hoping to build wealth as an entrepreneurial millennial, be sure to keep these tips for creating a budget in mind.