I’ve spent various months and years living on a self-employed income. Between jobs and sometimes instead of jobs I chose the route of self-employment. Being self-employed is an awesome thing and it comes with a lot of benefits. However, it doesn’t come with a steady paycheck.
Without a steady paycheck and regular income it can be hard to budget.
Most budgeting advice depends on two things: careful planning and a regular income. Because of that traditional advice, many self-employed people have to find our own way when making and sticking to budgets.
Budgeting Tips For The Self-Employed
Good money management is super important to achieving your personal finance goals. It’s even more important when you are trying to budget with an irregular income from being self-employed. The wisest of us make plans and budget carefully because we’ve seen that things can change down the road.
Below are my favorite budgeting tips that I’ve picked up as a self-employed individual. From personal experience and lots of reading about the subject, I’ve discovered a few tips to help budget when self-employed.
Don’t Spend Everything
This is the most basic of all personal finance advice, but it is very important for people who are self-employed. When you have money coming in and your bank account is flush, you can’t let yourself get lost with the false sense of security. When times are good you should save money because there will always be a time coming up when times aren’t as good. Don’t spend everything that comes in so you can prepare for those low times.
Set Your Budget By Expenses
You should determine your monthly expenses as the most important part of your budget. While it’s tempting to set a budget based on income you receive, it’s more helpful to set up a budget that is only based on what you need to spend. When you start your budget with actual living expenses you need to spend to survive, it’s much easier to be realistic and not rely on income that might not come.
Rank Expenses By Importance
When you are self-employed or have a variable income, you will need to rank expenses by their importance so you know what to pay for first. This will help you prioritize when money is tight and you can’t pay for everything. It also helps you understand where to put your money first when you do get it. This exercise can also be helpful to cut things from your budget because those last few items on your list might not even be needed.
Set Aside Money For Taxes
When you are working for yourself there is no one to withhold taxes for you. This means you have to complete quarterly estimated tax payments to the IRS throughout the year. Your estimated tax payments will need to include federal and state income tax as well as self-employment tax (the same Social Security and Medicare tax everyone pays but both parts as employer
and employee). The IRS requires taxes to be paid when the income is earned so make sure you set aside at least 30% each time you are paid to make sure you can cover these payments when they come along.
Build Your Emergency Fund
Savings is super important when you are self-employed. Make sure you have an adequate emergency fund built up and continue to contribute to it every month, even if it’s a small amount. A healthy emergency fund will allow you to weather the down times in your business and let you get by without relying on loans or credit.
Allocate For Insurance
There are several types of insurance you will have to pay for on your own as a self-employed person. Because you can deduct health care premiums as a self-employed worker, you should make sure health insurance is part of your budget. Additionally, you should get a life insurance policy if others depend on your income. These are benefits many employees get from companies but it’s something you must budget for when working on your own.
Set A Reasonable Income Target
After you’ve made a budget with your necessary expenses and prioritized the rest, you should think about setting income targets for yourself. Be reasonable and realistic with this. Use the number from your baseline expenses plus what you will have to pay in taxes each quarter and find out what you need to earn to cover everything. Of course it’s easier said than done when it comes to earning that money but having a target will help.
More Budgeting Help
An irregular income isn’t the end of the world, it just requires some additional planning and thought. With these budgeting tips and some experience you’ll soon be a pro at budgeting without a regular salary!
If you need more help with budgeting we highly recommend the following books and resources about budgeting. They will help you get started with a budget or fine tune what you already have to get you on the path to financial success!
Sinking funds help most budgets but they are critical to someone with variable income from self-employment. Having sinking funds for expenses can ease the swings in income and help you cover expenses even during low income months. You can start with a list of common sinking funds and grow your sinking fund strategy from there.
The You Need A Budget (YNAB) Method has helped tens of thousands of people to turn their financial lives around. It can certainly help you!
Whether you’re looking to right an apparently sinking ship, or you just want to implement a system that will require less time “managing” your money, YNAB will most definitely work for you.
Hate paying bills? So do I, and that’s why I stopped! What if I told you that I haven’t paid a bill in almost two years and my credit score is in the high 700’s, low 800’s? Would you call me a liar or would you want to know how I did it? With the help of Bella the Budgetnista, featured in this book, we will teach you what I took years to learn. The One Week Budget is for anyone that wants to manage their day-to-day money without the day-to-day hassle. Does this sound like you? What are you waiting for? Read the book already!
No matter your financial goal, a well-defined budget is the first step to achieving success. The Budget Kit offers consumers a foundation of knowledge, advice in reining in out-of-control spending, and necessary background information on personal investing.
Okay, folks, do you want to turn those fat and flabby expenses into a well-toned budget? Do you want to transform your sad and skinny little bank account into a bulked-up cash machine? Then get with the program, people. There’s one sure way to whip your finances into shape, and that’s with The Total Money Makeover: Classic Edition.
My Self-Employment Income
So how do I know anything about this? Because I have self-employment income!
As a blogger and YouTuber, I’ve created online income that I receive every month. While it’s not my full time income I have learned how to budget the income to make the best of it.
Check out some of my self-employment income reports!
- July 2018 Online Income Report | Rebuilding Online Income
- Online Income Report First Quarter 2019
- May 2019 Online Income Report
Want to learn how to make your own income from online activities like YouTube and blogging? Check out these helpful articles:
- How To Make Money Blogging
- How to Make Money Sharing What You Love with Affiliate Marketing
- How To Make $40K Your First Year Blogging
I hope you enjoy growing and budgeting your self-employment income!