How to Budget With Irregular Income When You’re Self-Employed

As business owners we all deal with irregular income. The worst part about it is that you never know when money from clients or projects will get paid.  So you're constantly doing a balancing act with your bills, financial goals, and transferring money back and forth between accounts. After experimenting with different strategies to increase cash flow, and level out the feast and famine cycles of being a freelancer, I finally figured out how you can create a successful budget plan, even if you don’t make consistent income.

I was recently a featured guest on the weekly Money Crashers Tweetchat (#mcchat), where the topic was all about Budgeting With Irregular Income. I regularly get questions related to this subject in my inbox, and on all my social media accounts. It’s something we all deal with as freelancers and business owners.

It’s tough to balance finding new work, getting paid, and figuring out where your money should be spent. The worst part about having irregular income is that you never know when money from clients or projects will get paid.

So you’re constantly doing a balancing act with your bills, financial goals, and transferring money back and forth between accounts. After experimenting with different strategies to increase cash flow, and level out the feast and famine cycles of being a freelancer, I feel like I’ve nearly mastered this concept (finally!).

So here are some tips on how you can create a successful budget plan, based on methods I’ve tested, even if you don’t make consistent income.

Start with a bare bones budget

What is the bare minimum amount of money you need to keep your business going and your personal expenses paid? As an entrepreneur with irregular income, there will likely be times when you need to cut back to the bare bones in order to make it through the month.

It’s vital that you know this figure and can bank on the fact that you will be able to pay all of your bills when the need arises. There are several different types of budgets you can choose from:

  • Mindful Budgeting. My blogging BFF Cait, from Blonde on a Budget, has a fabulous budgeting program that you can purchase that’s aimed at becoming more mindful with your budgeting process. It includes a column for your projected budget amount and then an actual column so you can compare it to what’s leftover at the end of the month. This will give you an idea of what you’re overspending on.
  • The 50/30/20 Plan. This is the budget plan that I use because it allows me to keep my bare bones budget at 50% of my overall income. That way if I lose more than half my income in a particular month, I know I’ll still be OK. This type of budget is broken down into 50% essential expenses, 30% lifestyle choices, and 20% saving/investing goals. Basically it’s 50% “needs,” 30% “wants,” and 20% “savings”.
  • Line-Item Budget. This is one of the more common types of budgets and is usually in spreadsheet form. You simply list out all of your income and expenses and then play with the numbers until they work out to a $0 balance. If you’re spending too much on one category (such as eating out or hobbies), then you’ll have to cut back in order to balance at the end of the month.

For my personal budget I use Mint.com to track spending since they have a super convenient (and free!) mobile app. For my business, I created a custom business spreadsheet along with a line-item budget worksheet so I can combine everything at one glance. Download it for free!

Get the self-employed budget

Set up an invoicing system

Obviously one of the biggest hurdles of having irregular income is that you’re never quite sure when you’ll receive payments for work you’ve completed. You can, however, ease this unknown by setting up an invoicing system and billing period for clients and projects.

Make it clear in your terms and conditions that you require partial payment up-front, or bill on on a monthly basis. Whatever your payment terms are, make sure they are clearly laid out for your clients. And whenever possible, ask to be put on a recurring billing cycle where your invoices can be paid automatically, or have a direct deposit straight into your bank account each month.

I use FreshBooks because it allows my clients to pay me via PayPal (which saves loads of transactions fees) or with a credit card of their choosing. Additionally, I don’t have to send payment reminders as the FreshBooks software does it for me at the 30 and 45 day marks.

Open multiple bank accounts

As a self-employed business owner you may or may not already be a separate business entity. And that’s OK, you absolutely do not have to be an LLC to function as a freelancer. You can simply be a sole-proprietor but run your business similar to how you would if you were a separate entity.

That’s what I’ve been doing for the past 3 years and only recently sought out a DBA license and separate Tax ID number. However your business functions, I highly recommend opening multiple bank accounts for various expenses and goals.

I confess that I’m a bit of a bank account junkie in that I have no less than 17 bank accounts (including both business and personal checking/savings). Each one of them has a name and a specific purpose. My husband and I also have separate personal accounts we use for fun money.

When you’re dealing with irregular income, you can ease the inconsistency by using multiple bank accounts for certain goals and large quarterly or yearly expenses. For my business I have a separate account for Taxes, Conferences and Business Travel. This allows me to set aside money throughout the year, and then withdraw funds related to this category when I need it.

No more not having the budget to go to an industry conference, or not having enough money to pay the IRS at tax time. By planning ahead, and using multiple bank accounts you can finally afford the things your business needs.

every transaction needs a purpose

Pay yourself a regular “salary”

Let’s set aside the legal stuff about whether or not you’re an LLC or other business entity. No matter how your business is set up you still need to draw down a regular salary to pay your personal bills.

One of the best financial moves I’ve made in the past 6 months was to put myself on a regular “salary” and set up weekly “paychecks” into my personal/household account. Every Friday I get paid a $900 paycheck — a lump sum transfer from my business checking account to our personal bank account.

No matter how much or how little my business brings in each week, I still pay myself the same amount. I use this to calculate our personal budget that pays our rent, groceries, and utilities, as well as setting aside small amounts for savings goals (like a new Jeep).

Paying myself on a regular basis has taken off TONS of pressure that I used to struggle with balancing my inconsistent business income. Experiment with paying yourself a regular paycheck, whether it’s weekly or bi-weekly, and see if the consistent income helps alleviate the pressure of having to come up with money to pay your personal bills.

Use a calendar for bill reminders

I live and die by my Google Calendar. Seriously, if it’s not on my calendar it doesn’t get done (and there have been many an appointment missed because I forgot to put it on my calendar). Aside from using it to schedule appointments and deadlines for clients, I also use it as a bill reminder for all my personal and business bills.

You can set up a bill reminder in Google Calendar (or any digital calendar) and have it send you an email to remind you to pay your bills on time. You can also choose the option to have a pop-up reminder if you’re logged into your calendar during the day.

As I’m sure you know, paying your bills on time is imperative as a small business owner, not just because you want to save money on late fees, but because you have to build a solid credit history and reputation for your growing business. It’s also likely that your income depends on keeping the electricity on, internet bill paid, and cell phone bill up-to-date.

Additionally, at the end of each month, the hubs and I have a monthly budget meeting where we review the income and expenses from last month and project our budget goals for the upcoming month.

Setting up regular budget check-ins and meetings is something we put in Google calendar as a regular appointment. That way it doesn’t slip our minds, or get pushed to the back burner.

Prioritize saving and investing over debt goals

As someone who paid off $14,000 and became debt free, I never thought that I would prioritize any other financial goal over paying off debt. But as someone who’s self-employed and has irregular income, I see how vital it is to sock extra money away in a separate savings account, as well as investing in your future retirement.

You no longer have an employer paying part of your Social Security and Medicare taxes, nor do you have the luxury of a 401K match. As a self-employed freelancer you are responsible for your own goals, financial needs, and retirement future. No one else is going to help you.

For these reasons I highly recommend prioritizing saving and investing goals above paying off debt. Keep in mind though, that if you have a lot of consumer debt that eats into your principal payment with high interest fees, those should be at the top of list once you have a decent emergency fund in place.

During the time I was paying off my credit card debt, I paused the investment contributions I made to my Betterment Roth IRA account. Once the debt was paid off though, I picked my monthly savings right back up again.

freelancer saving investing goals

How to budget with irregular income

Being the boss means you have to not only think about how to bring in enough money to pay the bills, but spend your money wisely so you can stretch the budget each month. These are all tips I currently use to make sure I stay on budget while still reaching my income and savings targets.

It will take a few months for a new budget plan to take effect, so don’t get discouraged if you try out these budget worksheets and you fail miserably. Keep at it and you’ll start to see significant results with 2-3 months.

Like with any habit, the more you do it, the better it starts working.

How do you balance making money when you have irregular income? Share you best tips below!

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8 comments

  1. Kayla says:

    Lots of great tips here Carrie! I love the one about having separate bank accounts (and lots of them). I’m totally a fan of that too!

  2. Mark says:

    Yes, great article on how to budget with irregular income.

    Great tips about the debt aspect of things, too. I had some to clear when I first started freelancing and it would have been much easier if I’d realised that at the time.

  3. Great article, Carrie! I think it’s incredibly important to meet with a financial adviser to budget your yearly expenses—especially if you’re self employed. I like you said, “I highly recommend prioritizing saving and investing goals above paying off debt.” It’s incredibly important that you’re maintaining your IRA accounts! Thanks for sharing this with us!

    • Carrie says:

      Glad you agree with my thoughts, Alex! Saving and investing is SO vital when you’re responsible for your own future retirement and other financial goals. No employer or government to fall back on now. 🙂

  4. Sarah says:

    Carrie,

    This is very useful for me as I’m starting a freelance writing and virtual assistant business. I really have no professional experience with the area however, I know I can translate the writing skills I have learned from my education (and will continue to learn). Thank you for such and informative article. I’m definitely going to check out mint. I also like the advice of giving a salary each week.

  5. Erin says:

    Thanks so much for this article. I’ve been crying all evening after discussing with my husband why we don’t have the money to pay our bills. He is self-employed in construction and I am a stay-at-home mom and homeschool our children. I haven’t figured out how to budget correctly because I never know how much is going to come in each week. I will try to implement your suggestions.

    • Corrie says:

      Erin, I could have written your comment. With the exception of homeschooling, ours is the very same situation. Have you made progress?

  6. Daniel Rivera says:

    Great Information! Just wondering Carrie, if you and your husband own CUTCO Cutlery? I noticed in your bio it said your husband is a chef. Keep up the great work!

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