How to Budget With Irregular Income to Avoid Going Broke

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Learn how to budget with irregular income as a freelancer or business owner. This will help you avoid going broke when self-employed so you can stress less about money. Plus, get the free budget worksheet spreadsheet template!

Being self-employed is tough enough without having to learn how to budget with irregular income. This month’s topics is all about Organizing Your Small Business Finances and today I’m talking about how to properly budget for success!

Without this skill, your business could be making you broke. You’re not alone in this feeling — I regularly get questions related to this subject in my inbox. It’s something we all deal with as small business owners.

It’s tough to balance finding new work, getting paid, and figuring out where your money should be spent. You’re constantly doing a balancing act with your bills, financial goals, and transferring money back and forth between accounts.

The worst part about irregular income is that you never know exactly when money from clients or projects will get paid.

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!).

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.

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 ( with a DBA license and separate Tax ID number). That’s what I did for the first 4 years of being in business, and only recently filed t become an LLC.

However your business functions, I highly recommend opening multiple bank accounts for various expenses and goals. Use them like digital envelopes where you prepare for upcoming expenses.

I confess that I’m a bit of a bank account junkie in that I have no less than 15 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 even out the inconsistency by using this strategy. Open multiple bank accounts for certain goals or large quarterly or yearly expenses.

For example, I have “tax account” for my business and set aside 25% of every single payment I receive in that account. Then when it’s time to pay my quarterly taxes, I have all the money saved up. No muss, no fuss!

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.

Related: How to choose the best bank account for your small business.

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 Invoicing 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.

Related: How to use FreshBooks to get your invoices paid faster.

How to budget with irregular income

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 2 years months was to put myself on a regular “salary” and set up weekly “paychecks” into my personal/household account.

I split each one of invoice payments and put 50% of my earnings straight into my personal household fund. The renaming funds are spent for business expenses and my tax account.

You could also transfer a lump sum transfer from your business checking account to your personal bank account once-a-week, like every Friday or Monday.

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.

Related: Here’s the exact formula to pay yourself a regular “salary”.

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.

Related: How to use Google Calendar to manage your life & business.

Finally learn how to save money on a part-time income

Find the right budget plan

I’m not going to tell you what the best budget plan is for you, since your finances are so personal. But I will say that you need to be open to experimenting so you can  find the best solution!

First, start with your bare bones figure. What is the bare minimum amount of money you need to keep your business going and your personal expenses paid?

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. Plus, it will give you a good base to work with different types of budgets.

Here are several you can choose from (and that I’ve tested in the past).

Use a budget workbook or planner

Nothing helps you get on budget faster than writing everything down on pen and paper (or in a spreadsheet). Taking the time to actually list out your income and expenses, will help you take back control of your money.

This is why I created a free debt workbook to help you understand your entire financial snapshot, so you can streamline your expenses. So make sure you input your name and email address below!

You can also check out one of these top business planners, that are made specifically for small biz owners.

Try the 50/30/20 budget 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 okay.

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”.

Test out budgeting software

Obviously, the simplest way to measure your income and expenses is to use free budgeting software, like Personal Capital. You can link up all your bank accounts, credit cards and other financial information to create a cohesive picture.

And the best part is that budgeting software like Personal Capital is free and can be used on the go with the mobile app to stay on track.

For my personal budget I use Mint.com to track spending since they have a super convenient (and free!) mobile app too. And don’t forget, I created a custom business spreadsheet along with a line-item budget worksheet so I can combine everything at a glance.

Prioritize saving and investing

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 you have to plan for the future.

I have personally seen how vital it is to sock extra money away in a separate savings account, as well as invest 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, which is why you have to help yourself!

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.

Related: How to save for retirement when you’re self-employed.

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 to avoid going broke.

It will take a few months for a new budget plan to take effect, so don’t get discouraged if you try out the budget worksheet listed above 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.

Learning to budget with irregular income isn’t easy but by using these simple steps you can avoid going broke!

Free: Self-Employed Budget & Debt Workbook

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Get the free debt workbook, with the expense and income worksheet, so you can master your debt for good! It comes with a bonus self-employed budgeting template!

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9 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!

  7. Tyler says:

    I really like the 50/30/20 budgeting method. It’s simple to implement and use, yet it’s a very effective way to track and divide your income. Great post!

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