How to invest when you have unpredictable income

Gig workers and freelancers often find themselves managing an unstable flow of income, where some months can be more prosperous than others. For many, that makes it more challenging to save and invest steadily for the future. Still, experts say consistency is possible with a slight shift in perspective.

Budgeting around unpredictable paydays

Woodfield recommended starting with building a nest egg for tough times. Freelancers would want to have anywhere from six months to a year in some form of short-term, liquid investment at any time, Woodfield said. That’s different from a salaried employee, who can usually get by with about three months’ worth of emergency funds. 

Gig workers don’t often have workplace benefits or the implied long-term security enjoyed by salaried workers, such as a pension or severance, said David McVay, president of McVay and Associates Ltd. “It’s more important for people in that space to build up their wealth for their own security, not counting on anything more than a Canada Pension Plan and Old Age Security,” he said. “It’s something you should start off as young as possible.”

As well as freelancers and gig workers, real estate agents and salespeople are among those who often have unpredictable or inconsistent income. “They never really know when they’re getting their next [paycheque]” Woodfield said. “I would always say to them, ‘Take a third of that money and just put it in something safe, something that’s liquid.’”

Once there’s a sufficient buffer built up, Woodfield said that’s your cue to start investing consistently, similar to a salaried worker. That means breaking down your paycheque into smaller chunks, dedicated to specific purposes. For instance, a third goes into short-term savings, a third into long-term savings and the rest to pay bills, he said. 

But consistency for those with an inconsistent paycheque may require a different approach, said Brooke Dean, a Calgary-based senior wealth manager with BMD Financial Ltd. She said it might be helpful to invest a percentage of your income, instead of a fixed amount. It could be as little as 10% from every paycheque, whenever that arrives. That way, she said you can remain consistent even when the actual sum of money invested differs.

Balancing growth and stability

McVay said freelancers should consider what their financial goals are. If buying a home is on the list, start investing in a first home savings account. But if a home isn’t on the horizon, stick with a tax-free savings account instead.

“If you don’t have much of a tax burden, then investing within a tax-free savings account at least shelters any large growth that you might get from taxes,” he said. 

McVay said young investors can choose to invest in growth-focused ETFs, which tend to be less risk-averse, if there’s no immediate need for cash. “When it comes to aggressive investments, it’s how long you can hold on to them. That is the key,” he said. But it’s important to know how much risk is too much risk, he added. 

For instance, the risk appetite is likely low when there’s a need to have the cash handy at a moment’s notice, McVay said. “But if you have accumulated the six months of security blanket, then you can have more freedom (to be) aggressive or go for growth in your investment portfolio.”

Woodfield warned gig workers to be cautious with their investments, even if they’re younger and have a higher risk appetite. “They’ve got to really plan and be diligent and make sure they have that cash wedged,” he said. 

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