Everyone who’s been freelancing for a while knows that there are ups and downs in a freelancer’s income. Though I don’t like the decrease in cash flow, I sometimes appreciate the downs because it means I get a bit of a break from working so much. Fortunately, even my “down” months bring in enough income to cover all my expenses, so I’m never depressed about that.
Recently, I had a big increase in freelance writing income and it’ll probably continue at least through the first few months of next year. Of course, now I have the joy of deciding what to do with the extra money.
What to do with extra income?
When you have a few months where your income increases, here are some smart ways to spend that extra money.
Get caught up where you’re behind.
If you’re delinquent on any bills, use the money to bring those accounts current. This is true for credit cards and loans as well as your utilities, cell phone, and other accounts. Waiting to get caught up will only make those accounts grow with interest and late fees. If you’ve been putting off car repairs or doctor visits because you didn’t have the funds, now is the time to take care of those things before any existing problems get worse.
Pay back people you’ve borrowed from.
If you’ve taken out a loan from family members or friends pay them back with the extra money. Sure, they’re more likely to understand if you need an extension on the loan, but they’re also less likely to loan to you again if you take too long to pay them back.
Put some money toward taxes.
As you make more money, you (generally) owe more taxes. Redo your estimated payment calculations to see if you’ll owe more taxes this period. If necessary, put some money aside to send to the IRS.
Leave some in your business account.
When your income fluctuates each month, you have to use the “up” months to help make up the income for “down” months. So, rather than spend all the extra income you make in a particular month, put some of it aside to supplement your income during months when you don’t make so much.
Pay off some debt.
I have a long-standing goal to pay off my student loan debt. I hope to get more aggressive with paying off this debt, but in the meantime, I always send an extra payment during months that I have some money to spare. If you have debts that you’d like to get rid of, use your extra cash flow to start making dents in that debt.
I have a variety of savings goals: retirement savings, emergency fund savings, vacation fund, birthday party fund, and regular savings. Extra income is great for helping reach these savings goals.
How sad would it be to always spend your money on “responsible” things? I’m an advocate of having a little fun with your money, even if it’s just $10 or $20.
What do you like to do with your extra money?