Budgeting if you get a regular paycheck each month is (relatively) easy. But what if you’re self-employed or do freelance work, your income will be quite irregular. Should you even bother trying to set up a monthly budget? Well, budgeting is even more important when you don’t have a regular source of income—and it can be a bit more challenging as well. But fear not, for many have gone before you, and the secrets of regular budgeting on an irregular income have long been known…
Secret number 1: If your income is unstable, then your spending needs to be stable. So, this is the opposite of budgeting with a regular income. Instead of fitting your spending within your income, you start off from how much you will be spending and then figure out how much you need.
To plan your expenses, you might want to follow the 50/20/30 rule:
50% goes to the essentials; food, gas, etc.
20% goes to financial priorities; retirement savings, debt payments, etc.
30% goes to lifestyle; cable TV, hobbies, etc.
With that in mind, try to estimate your baseline expenditure, including groceries, utilities, medical costs, transportation, taxes, etc. This essentially becomes your income target.
Secret number 2: Organize your money by setting up multiple bank accounts. This might sound redundant, but cramming everything into one account and trying to make sense of the statements will only drive you mad. (Trust me on this one—been there, done that… ^^). Ideally, you should have:
A business account: All sorts of payments from your clients should go in here. Then, you will make three transfers each month to the other three accounts, which include your:
Personal account: This account will be used to pay all your bills. If your actual income exceeds your target, the resulting ‘bonus’ should also be put into this account.
Emergency savings account: This account should hold at least six months’ worth of net income, to be used for, well, emergencies.
Priority savings: This is where you store funds for annual expenses (income tax, for example) and for long-term expenses (such as setting up an education fund for your children).
And there you have it: a solid budget that’s perfect if you don’t collect a monthly paycheck…