Smart Financial Moves When Your Income Is Project-Based

Are you tired of feeling strapped for cash between projects?

Working on a project basis has rapidly become the expected standard. As businesses begin to realize employee expenses can be slashed by contracting with freelancers, project work is becoming more prevalent.

Millions of Americans now work as independent contractors by trade or side-hustle. There are obvious benefits to this shift.

Flexibility and freedom are fantastic. But there is one huge drawback:

Uncertain income.

One month you land nearly back-to-back projects. The next month comes and goes with little to no work. Budgeting becomes impossible.

Until you learn how to manage finances as a freelancer.

Table of Contents

• Why Project-Based Income Requires Different Financial Thinking
• Create A Safety Net For Yourself
• Emergency Funds When You Have No Money
• Generating Multiple Revenue Streams

Why Project-Based Income Requires Different Financial Thinking

The gig economy isn’t going anywhere.

In fact industry forecasts predict freelance jobs will continue to grow at an increasing rate. Currently over 70 million Americans (about 36%) identify as freelancers.

The issue:

Most financial advice out there is built for traditional workers with set pay periods every two weeks. But if you’re not getting paid the same amount on a specific date each month, this advice doesn’t apply!

When you’re paid based on projects, there are many obstacles you’ll have to overcome that an employee would never have to think about:

• Lack of access to employer-sponsored benefits or matching retirement funds
• Handling your own tax contributions including self-employment tax
• Dry spells between projects which can quickly deplete savings
• Struggles to get approved for most traditional lending products

That is why you need an entire different mindset when it comes to money.

The most important thing to remember is don’t spend all your earnings when you make more than you need to cover expenses. Bad financial habits are easy to fall into when you suddenly make significantly more than you did the previous month.

Making smart money moves during high-pay periods will set you up for success when next dry spell hits.

Create A Safety Net For Yourself

If you work for yourself or on a contract basis, you need to have an emergency fund.

There, I said it.

However…

Typical rules that state you should have 3-6 months of expenses saved don’t apply here. You need to aim for at least 6-12 months of living expenses in your emergency fund.

Why?

Because when times are slow, they can come to a screeching halt very quickly. It usually doesn’t take long to burn through your savings when the work is hard to come by. Plus, it can take a while to line up that next big project.

So how do you build up that emergency fund?

• Track your monthly expenses
  • Rent/mortgage
  • Utilities
  • Insurance
  • Food
  • Minimum debt payments etc.
• Set a goal.
  • If you’re just starting out save for one month of expenses. Get that $1,000 first, then build from there.
• Automatically transfer money to your savings account.
  • You won’t spend what you don’t see.
• Save a percentage of every dollar that comes in.

Start small and grow from there. You’d be surprised how fast it can add up when you’re making larger deposits every other month during busy seasons.

Emergency Funds When You Have No Money

We all know emergencies like this!

Your car breaks down and you need it to complete a project. You have a huge medical bill that can’t wait. Or your computer dies right before you’re about to start a new gig.

No matter how hard you try to plan, there will always be times you don’t have enough money in savings to cover what you need.

Did you know:

Almost 40% of Americans would have trouble covering a $400 unexpected expense. I’m sure this percentage is much higher for those with project-based incomes.

So what are your options if you’re in a bind and have no money?

You won’t qualify for traditional bank loans as a contractor. Without proof of steady income you’ll be denied by every bank around. It’s that simple.

If you own a vehicle, you may be able to get a car title loan without original title in hand. Many title loan providers will work with the DMV to confirm your information and allow you to borrow against your vehicle’s equity.

Other options:

• Apply for a business line of credit when you’re between projects and income is good.
• Factoring your invoices (getting paid immediately for unpaid invoices).
• Peer to peer lending programs
• Credit union loans

Don’t wait until you’re up a creek without a paddle to research your options. When you’re in a good spot income-wise scout around and know what you can do if an emergency were to happen.

Generating Multiple Revenue Streams

This may be the best piece of advice for anyone with an unpredictable income.

Don’t put all your eggs in one basket.

I can’t stress this enough! Having multiple income streams not only diversifies your income but helps protect you if there is a dry spell in one of your fields.

Think about services you could offer that align with your current skills. Here are some ideas:

• Writers – Write an ebook or create an online course
• Graphic Designers – Sell your creations on Etsy
• Consultants – Create group coaching programs
• Software Developers – Make your own passive income website

It’s all about creating revenue that won’t have you trading hours directly for dollars. Having passive income helps during the slow times.

You can also mix traditional projects with part-time clients who you pay a retainer. Even one or two clients that you know will pay you every month can make budgeting that much easier.

Managing Taxes Like A Pro

Let’s face it….

Self employment taxes suck!

You aren’t just paying employees portion of Social Security and Medicare. You also pay the employer portion…all out of pocket.

That equals 15.3% taken from every single dollar you earn.

What you can do:

As soon as you get paid immediately set aside money for taxes. Do not touch this money for anything other than taxes. I know many financial coaches recommend setting aside atleast 25-30% of each paycheck.

By paying yourself quarterly taxes you won’t be hit with a huge bill at tax season. If you miss the deadline you will be assessed a penalty.

Work with an accountant that specializes in freelancers. They can help you discover tax deductions you didn’t know you qualified for. From home office expenses to equipment and software to health insurance premiums. You’d be surprised at what you can write off.

Conclusion

Finances are entirely different when you’re paid by project.

You can’t follow the same rules as your friends with 9-5 jobs. Company paid benefits, steady income, and traditional lenders aren’t going to work for you.

What will work are these tips:

• Saving up an emergency fund that is larger than the average suggestion
• Knowing your options should you come across an emergency
• Generating multiple streams of income
• Being responsible and staying on top of your taxes

Freedom of being a contractor comes with responsibility.

Take these baby steps and watch your financial situation as a contractor improve before your eyes.