As economic times become uncertain, many Americans feel substantial financial stress and pressure as they struggle to pay bills and support their families. For contract workers, income is unpredictable, so managing your money is even more crucial.
If you are a contract worker who needs to get control of your expenses and manage your finances, read on for some valuable tips that will help you avoid the stresses of financial woes.
Start with Your Expenses
Look at all your financial statements and calculate what you spend each month. Everyone’s circumstances are different, but you will likely have expenses that can be sorted into:
- Essential spending
- Luxury spending
- Optional spending
- Business spending
This category includes any money that must be paid to meet your basic needs. It could consist of money for your home, such as rent or mortgage payments, as well as any taxes, maintenance, and repairs. Food, utilities, car maintenance, insurance premiums, and debt payments are also included.
Luxury spending is the fun stuff that isn’t essential but does help you enjoy life to the fullest. This includes vacations, entertainment, dining out, hobbies, sporting events, beauty treatments, and charitable donations.
Optional spending is spending that helps you to live a comfortable life. It may include clothing and shoes, gifts for special occasions, and subscription services for entertainment.
Depending on your business type, these could range from professional services to software and web hosting to financial management charges.
Once you have identified all your expenses, add 10% to each to account for any overlooked or emergency expenses.
Work Out Your Average Income
Next, calculate your average income for a month. Include any income you regularly receive. Consider the necessary taxes as well. For any income where tax is not withheld, you need to estimate between 25% and 30% of those earnings for taxes.
Deduct your expenses from your income after taxes. This will give you your residual income for the month. Depending on what you have leftover, you may need to look at your optional and luxury expenses and see where you can reduce expenses a bit. This may require some tough choices, but in the long run, you’ll be improving your finances long-term.
Plan for the Future
First, look at your debts and focus on the ones with the highest interest charges. This will help lower your monthly payments and improve your credit rating, a critical factor in building a more stable financial future. Then, build an emergency budget with three and six months of essential and business costs saved up. Take some of your residual income and put it away each month to start building the emergency budget.