How to handle irregular cash flow (freelancers — this is for you)

This week, I’m showing you exactly how to set up my Automated Money System To view this email as a web page, [click here]() How to handle atypical cash flows This week, I’m showing you exactly how to set up my Automated Money System so that your finances are completely automated. So far this week, we’ve covered the basic Automated Money System schedule. You linked your accounts, set up automatic transfers, and are starting to enjoy the benefits. “Great, if you have a regular income,” you may be thinking, “but I’m not paid on a straight once-a-month schedule.” That’s not a problem! You can just adjust your Automated Money System to match any payment schedule. "What if I’m paid twice a month?"This is a simple tweak. You can easily automate your money even if you're paid twice a month. In fact, there are two easy ways to do it. Option 1: Replicate my system on the first and the fifteenth — with half the money each time. You'll pay your bills at the start of the month, with your first paycheck. Then you'll fund your savings and investment accounts in the middle of the month, with your second paycheck. The key is to make sure you pay your bills on time, which is why it’s important to move your bills’ due dates to the first of the month. Option 2: Save a “buffer” of money that you can use to simulate getting paid once a month. You’re essentially keeping a pool of money in your checking account to pay your bills and contribute to your savings and checking account, then getting “paid back” by your paycheck each month. For example, if your take-home pay is $4,000/month (or $2,000 bimonthly), you could keep $6,000 in your checking account and follow my automation system as outlined in this lesson. Why $6,000? Because each month, your automation system will begin transferring money for bills and savings and checking, and you want to build in a little extra in case something goes wrong (such as your paycheck arriving late). If you can afford to do this, this is a great way to simplify your system and simulate getting paid once a month — even if you get paid bimonthly. "What if I have irregular income?"I know lots of freelancers and others who earn $12,000 one month, then nothing for the next two months. That's just part of their natural cash flow. How can you deal with spikes in income and still automate your finances? Good news: This system will accommodate irregular income with no problem — you just need to take an extra step. In months where you make a lot, you’re going to save and build a buffer for the slow months. Over time, you’ll build enough of a buffer that you can simulate a stable income, letting you use this system as designed. Even in slow months, you can pay yourself from your buffer. Here’s how you do it. - First, figure out how much money you need each month. Focus on the bare minimum: rent, utilities, food, loan payments — just the basic, monthly necessities. Take a second to write it down. - Now, in your [Conscious Spending Plan](), add a savings goal of three months of bare-bones income before you do any investing. For example, if you need at least $3,500/month to live on, you’ll need to have $10,500 in a savings buffer, which you can use to smooth out months where you don’t generate much income. The buffer should exist as a sub-account in your savings account. To fund it, use money from two places: - First, forget about investing while you’re setting up the buffer, and instead take any money you would have invested and send it to your savings account. - Second, in good months, any extra dollar you make should go into your buffer savings. - Once you’ve saved up three months of money as a cushion, congratulations! You're set. (To go the extra mile, work toward a six-month emergency fund.) You’ve built a stable buffer and you can simulate a stable income. Think about it: If you have a bad month — even a really bad month, where you make $0 — you can easily cover your expenses. And when you have a really good month, you can simply rebuild toward your three- or six-month goal. Through automated savings, you’ve bought yourself time and stability. [Chart] I have two additional recommendations for people with irregular income streams: First, because you’re self-employed, you probably don’t have access to a traditional 401(k), but you should look into a Solo 401(k) or SEP-IRA, which are great alternatives. Just keep in mind that it’s probably wise to sock away a little more into your savings account in good months to make up for the less profitable ones. Also, a quick note on taxes: As a freelancer, you’re responsible for your self-employment tax, which your employer would normally handle if you were a traditional employee. Self-employment taxes can get very tricky very quickly, so I’m going to give you my rule of thumb, then encourage you to talk to a professional. Since many freelancers don’t know the rules around self-employment taxes, they can get surprised when tax time comes around. I’ve known a lot of freelancers who were stunned to owe unexpectedly large amounts for taxes. As a rule of thumb, you should set aside 40 percent of your income for taxes. Some people save 30 percent, but I prefer to be conservative: It’s better to end up oversaving than owing money at the end of the year. Your bookkeeper can advise you on exactly how much to set aside, and how to automate your quarterly payments, so see a professional. It’s worth it. I also recommend using You Need a Budget as a planning tool if you have an irregular income. Monitoring your Automated Money System Whether you have a regular income or an irregular income, you’ll need to monitor your Automated Money Flow and make adjustments as your finances change. So tomorrow, I’m going to show you how I spend 30 minutes each month checking in on my system. Thirty minutes — that’s it! Then I’m back to living my Rich Life. Tomorrow, I’ll show you how. [Signature] WHAT TO DO NEXT SHARE: Know someone who would benefit from automating their money? They can sign up for my FREE automation mini-course [here](). 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