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How To Convert Your Irregular Income Into A Regular One

Here’s a quick way to convert your irregular income into something that is more like a regular predictable income.

The price you pay for being your own boss as a freelancer is an unpredictable pay cheque. But, that doesn’t necessarily mean you can’t have the same sort of stability as your salaried peers.

Here’s a quick way to convert your irregular income into something that is more like a regular predictable income.

First some homework:

(i) Figure out what is your average annual income. If you’ve been a freelancer for a while, you can just add up the amounts you deposited into your bank account over the last year. Reduce this by about 10% to account for taxes that you might have to pay over and above the TDS that has been deducted.

(ii) Divide this amount by 12 to arrive at your "base case monthly income". Your aim is to have this much with you every month.

(iii) Now do the same exercise with your expenses. Also, remember to separate professional or personal expenses. For the personal expenses, categorize them into essential (rent!) and others.

(iv) Most freelancers will have professional expenses which are lumpy and big - typically the cost of equipment renewal or attending an expensive annual conference. Sum these up and divide by 12 as well. This is the amount you need to set aside every month for lumpy expenses.

It’s likely that the mounting tally of expenses is making you nervous. But don’t worry, here’s how you can manage them.

#1. Create two bank accounts and one investment account. Dedicate one bank account to personal expenses (your "salary" account) and the other to professional. For the investment account, we recommend Scripbox :)

#2. As soon as you receive any payment for a project, transfer it to your investment account. Invest it into a category of funds from where you can withdraw easily. Scripbox Emergency Fund, for example.

#3 From this, pay yourself your "base case salary" into your "personal" or "Salary" bank account every month.

#4 From your "salary" transfer the following two amounts to your "professional" bank account: Average monthly professional expenses calculated in step (iii) above, and the monthly set-aside amount calculated in step (iv).

Over time you would discover that you have amounts left into your "salary" bank account. This would be a great moment both professionally & personally. This means that now you can start setting aside money for longer term investments.

This is a simple method that can give you the best of both worlds - the freedom of pursuing your own path, as well as the financial freedom that comes from a regular income.

Note: This will not work if your expenses are adding up to more than your income. In such a case, you need to take some steps and reconsider first your non-essential expenses and then even what you consider essential.

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