How to Budget When You're Self-Employed | See Girl Work

How to Budget When You’re Self-Employed

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Zero-based budgeting essentially means that you budget only the money you have. Which in the case of a variable income, means you take the money you have today and make a spending plan.

You’ve heard about budgeting. When you go down the rabbit hole of the internet trying to figure out how to get a handle on where your money is all going, you keep hearing, “get a budget!” or “try this software!” which, when you have a variable income, is like telling someone with a gushing head wound “have you thought about a bandage?”

Not helpful.

What if there was a way to budget your money that worked great for variable incomes?

There is — it’s called zero-based budgeting. It’s a different system than what most budgeting systems are, which is why it works so much better for this instance. Whether you’re a freelancer, working a steady job with a side hustle, in a commission based job, or are a business owner – you can budget in a way that actually works.

Zero-based budgeting essentially means that you budget only the money you have. Which in the case of a variable income, means you take the money you have today and make a spending plan (a “budget”) for that money only. Then, when you get more income, you make a plan for that money. Rinse and repeat forever.

This takes all the guesswork out of “well that invoice is due tomorrow” or “My contract says I need to get paid by the 15th, so” or – more realistically “that invoice is 2 weeks overdue, surely it will get paid any day now, right?”

No more guessing. When you guess at how much income you have coming in and things go sideways (and don’t they always?), two things happen.

• You now either have too little money for the plans you’ve made (hello, credit cards!) or you have more than you expected (should I save this? Can I spend it?).

• It undermines your whole confidence in your budget. This is huge! If you tried to budget and this happened, why bother?

OK, legit question. Why bother budgeting?

Listen – I am not unbiased on this topic. I love budgeting. I recommend it to everyone. But there’s one person I’m practically foaming at the mouth to get them to budget, and that’s…you. Yes, you person who doesn’t know, exactly, what their income is going to be this month.

Budgeting this way helps you understand not only where your money already went, but also be the boss of where it goes next.

Imagine that you get up on the 1st of the month, take a look at your budget, and know that the money for every bill for the whole month is already sitting in your checking account, just waiting for the autopay to go through.

Imagine being able to do a ‘big’ grocery run at any time in the month that you wanted, knowing that you planned for that to happen this month and so it doesn’t matter much when you go, so go when the sales are (or the fresh goodies you want are available).

Imagine not caring if an invoice gets paid late. You’ll still care in the “I’m running a business here, not a charity” sort of way, and in the “ugh why doesn’t this client ever pay me on time?!” way, but not in the “OMG we better eat ramen this week!” way.

That’s the sort of thing that this sort of budgeting can do for you.

OK, you’re sold. Budgeting is worth a shot. So, how?

self employed budget

Remember earlier when I said that zero-based budgeting was essentially making a plan for what you have now, and then doing it again when you get paid again? That’s the gist of it. Here’s what that looks like in practice:

• How much money do you have today?

ο  Count the money in your checking account, but not your savings (if you actually leave your savings account alone like a G.D. adult).

ο  If you pay your credit cards in full each month (ha!) subtract the amount you currently owe on your credit cards. If you are working on paying them off, don’t do anything with them yet.

• What do you need that money to do for you before you get paid again?

ο  If you have a rough idea of when you’ll get paid but are not sure, double it (i.e. I’m supposed to be paid next week = in two weeks).

ο  Make sure you have your immediate bills covered, a roof over your head, food in the fridge, and gas in the tank.

• What do you want that money to do for you before you get paid again?

ο  If there’s money that you have today left over after what you need it to do, ask yourself what you want it to do for you.

ο  Do you have a date night planned that you want to stick to? Do you “need” something that could wait but you’d rather it didn’t? Do you have a credit card you’re working on paying off that you’d like to throw some extra at?

• Got paid again? Great — ask yourself the same questions again.

Whether you’re a freelancer or side hustler, you can budget in a way that actually works. Click To Tweet

When you’re dealing with the harsh day to day that can sometimes come with variable incomes, this is the simplest form of getting out of it.

What happens with a little time is that you start to build up a little more of the wants – and some of those wants start to shift. Especially with variable income, you might want to, and I recommend, put some money aside for the bills that happen in the next round of will-I-get-paid-on-time. After a while, you’ll realize you’ve got the whole month of needs covered.

Especially with variable income, you might want to, and I recommend, put some money aside for the bills that happen in the next round of will-I-get-paid-on-time. After a while, you’ll realize you’ve got the whole month of needs covered. That’s where it gets really fun!

There are great tools out there, too, that help make this process work even better. You can keep it as simple as cash and envelopes, or, my favourite budgeting tool, You Need a Budget (YNAB) does a great job with this and it’s all digital and quite powerful.

Check it out, or keep it old-school. Whatever helps you break this cash-flow rollercoaster, my fine income-varied friend!

What do you think? Is this the system that could help you finally get ahead? Let me know in the comments!

 

The post originally appeared on The Wiser Miser
Image via Jason Briscoe on Unsplash

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Lynne Somerman

Lynne Somerman

Founder, The Wiser Miser

Lynne Somerman is the money maven behind The Wiser Miser, where folks feel better about their money with tried and true ideas that go beyond the basics, all in a no-shame safe zone. Helping the self-employed handle that old familiar cash flow roller coaster is her nerdy specialty.

  • Sara Michelle Peters

    Zero-based budgeting makes so much sense but I’d never really thought about it the way you just explained it! Thank you – definitely an important read for anyone struggling with managing their finances.

    • Lynne Somerman

      It’s a total mindset shift, to be sure! Give it a try and let me know if there’s anything I can do to help out 🙂

  • Dada KS

    Zero based budgeting seems like a very smart way to get control over your finance! And I know many people who struggle in the end of the month with money not because they earn to little but they spend to much! I dont have that problem to be honest!

    • Lynne Somerman

      Lots of people do have that problem, Dada, but I find a lot of people who *earn* enough but don’t find that they can *save* enough – and this sort of budgeting can help that, too!

  • Ola Broom

    This is quite interesting. I’ll have to print this out and share it with my husband.

    • Lynne Somerman

      Ola – if there’s anything I can do to help you and your husband figure out how to make this work for you, just let me know!

  • I like this strategy, and I think it is a great way to budget. Many people do not really think about budgeting until they find themselves in a tough position. This is great.

    • Lynne Somerman

      Sheri you’re right about that, most people don’t think to work on this stuff until it’s too late. You know what they say – an ounce of prevention beats a pound of cure! 😉

  • Natasha Kendall

    Great advice. I often forget to budget, but I am slowly getting better!

    • Lynne Somerman

      Budgeting like this (frequently, in small doses) is often easier to keep up with because it becomes more of a habit than a chore. Keep at it!

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