Map your money year

Planning our weekly and monthly spending is how we find the money to repay debts and begin to save and invest. When I’ve talked about this with people in the past, they tell me that they can start to save but “something always comes up”.

Ah yes, the something-always-comes-up effect, or as it’s otherwise known, the occasional spending issue.

If your spending plan only covers the day-to-day expenses that occur every month, then it will seem like “something always comes up” because many months have additional expenses that only occur once a year. If you don’t plan for these, they will always derail you.

So how can you get on top of your occasional spending? Well, occasional expenses can be categorised as fun vs boring types and predictable vs random types.

We’ll start with the predictable expenses because these are where the map of the year comes in. Get a calendar and write in each month any big expenses and also any times when your income changes. For example, if your employer pays a bonus (and you can be very confident you will be getting this bonus) when would that come? Is there seasonal variation in your hours, commission or profits? Mark that in.

This is your money map of the year. It could look something like this*:

Using the map will help you to see if there are particular crunch points in your year when several expenses come at once. You can then work out if any of these could be paid early or delayed to smooth out your costs. It can also help you to be clear during the “good” months how much you need to save for upcoming costs and how much is actually available for a bit of fun.

The random expenses are a bit trickier. You need to think about roughly what you expect them to cost and how often you expect them to happen e.g. if you’re in your mid-late twenties you can expect quite a few of your friends to be getting married and having babies, so it’s a good idea to put a small amount of money aside each month, so you can really enjoy these celebrations when they happen without worrying how much you’re spending.

If you’re a homeowner, you can probably expect one significant repair or replacement every year, so consider how much you’d expect to spend on a new appliance, item or furniture or repair call-out and divide by 12.

Mapping your money year and having a pot of savings (or two) for random costs, brings a strong sense of control and peace of mind. There’s nothing like knowing you’re not going to have to borrow for Christmas and you won’t be caught short by a blocked pipe or a bricked phone.

What is on your map? Can you take a photo and send it to me on Twitter @marthalawton?

*This is not my actual map of the year, it’s loosely based on UK averages.

When is a budgeting issue not a budgeting issue? (A blog post for freelancers)

When you’re a freelancer working out what you can afford to spend can be a nightmare. I mean, it’s ok if you’re established and making the big bucks, but what about when you’re just getting going, or if you’re in a field that’s more known for passion than paycheques?

How do you plan your spending when you don’t know how much money you’re going to have until you’ve got it? When you’re living job to job and struggling in between, it can feel like everything is out of your control.

I have lived this life. I know this issue well. I hate to tell you this, but this probably isn’t a budgeting issue, this is a business issue.

My first question for people in this situation is this: are you sure you don’t know what you’re going to make and when? Why not?

Many, many types of freelance work have a pattern to them; some are seasonal and follow the weather, or the academic year, or certain holidays. Others just tend to go through a cycle (pitch, contract, set up, work, close, payment) with relatively predictable timescales for each stage.

If you haven’t figured out the time patterns for your freelance work, it’s worth taking a few hours and trying to do so. These patterns determine when you get paid and that is vital information.

If you’re not a business-y type you probably avoid words like ‘cashflow’ but you’ll be familiar with the dreaded phrase ‘feast and famine’ or as I like to call it, having a lumpy income.

But unless you smooth out those lumps you’re always going to struggle, so go back through your invoicing, go back through your work calendar and look for the patterns.

Once you know roughly what happens with your work you can plan how you’re going to manage both your time and your money better. For example, your pattern might include something like this: “everyone needs my outputs about six weeks before the major holidays and seasonal events. I tend to get paid about two weeks after that”. So you can plot when those holidays and events come and reckon on getting paid about a month before each. Or else find another income stream with the opposite seasonal pattern to balance you out.

Or your pattern could be “it takes an average of six weeks from pitching to starting work, eight to finish a project, and another four from finishing work to getting paid” You know that you need to start pitching at least four weeks before work on each job ends, so you aren’t leaving a huge gap between projects and struggling for money if an invoice becomes overdue. You could also consider setting up your contracts for part payment midway through to prevent the gaps from getting too long.

Once you start paying attention to this, you’ll feel much more in control of what’s happening in your work. You can start looking for solutions and that will give you confidence as you promote your work.

It will also allow you to plan your spending, so you know how long you’re likely to have to make each payment last and you can make sure bigger essential outgoings tally in with times when you are confident of having more money.