Working for yourself can be one of the most rewarding things you could ever do, but it can also be the scariest.
It’s exciting to wake up and know that you are writing your own W-2 for the year. No boss to answer to (unless you are married). Life is great. If things go as planned, you start to see money coming in the door.
Then you quickly discover something very important: managing your money is even more critical.
Budgeting Tips for the Commissioned-Only or Self-Employed
In the good times money management is important because you can easily let down your guard and spend more then you realize. The optimist in you can mistakenly believe that it will always be like this from now on, only to find out a few years later that things can change suddenly without notice.
The wise see trouble coming from far off and make plans. On the other hand, when times are tough you need to manage your money well. Sometimes, things can get so tight financially that we really do not want to face how bad things really are. So, we just continue down the road making things worse financially.
As you can tell, money management is always important. For the last seven years, I have worked as a self-employed individual. My wonderful wife stays home with our two small children and I wouldn’t have it any different because that is what she most enjoys in life. If you are self-employed, I want to share with you some budgeting tips that I have learned along the way.
1. Don’t spend it all when you get it.
I know that this should go without saying, but something happens mentally when you have a few thousand extra dollars in the bank. I know some of you are wishing for that problem to come into your life. I believe that time and chance happens to us all so you still need to be prepared now. Once money stats to come in, you can develop a false sense of security and can easily let your guard down. The book of Proverbs (22:3 NIV) tells us that, “The prudent see danger and take refuge, but the simple keep going and pay the penalty.” Do not foolishly let your guard down when times are good. Decide now that you are going to be smart with surplus.
2. Determine your monthly expenses.
Try your best to erase the income portion of your balance sheet for a moment. Many of us measure our standard of living by the income we are receiving. One of the most helpful exercises that I have ever done was to write up a “necessities budget.” This was my actual “living expenses” budget that my family needs to survive. This will help you to get crystal clear on what your real budgeting needs are out of all your budget categories. You can even expand it out 12 months to get an idea of what you need to make annually.
3. Use cash for anything that is not a bill.
After you have your necessities budget set up, determine a reasonable monthly amount for anything that is not directly related to a bill. Get that amount out from the bank either weekly or monthly.
This will help you in many ways. It creates discipline because once the money runs out you have to wait until your next cash withdrawal. It also keeps you better organized as you will not be pulling your hair out with all of the small charges on your bank statement.
4. Rank your expenses in order of importance.
If money becomes extremely tight, then take out a piece of paper and rank all of your expenses in order of importance. This is a great exercise to do for many reasons. It helps you to know who to pay first when some money does come in the door. Try your best not to have automatic withdrawals in your account. While it might appear simpler, you have less control. Also, take a look at the very bottom of the list. Maybe the last five items on your list you could be cut out altogether as they are not as important to you to begin with.
Apply some of these principles today and you will have a better piece of mind even with an irregular income.
What have you learned about budgeting when you don’t have a regular salary? Leave a comment!