4 Budgeting Tips for the Self-Employed (or Those with Irregular Income)

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.

4 #budgeting tips for those with irregular income  /budgeting-tips-irregular-income/

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,ย 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.”ย 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!

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  1. Michelle H.

    My husgand and I have been self-employed for the last four years. We’ve implemented most of these strategies. We learned Number 1. pretty quickly but even then it took us a year or two to really get used to the up and down swings of our income.
    I think one of the most worrisome aspects of self-employment is there is no unemployment insurance for us! I’ve checked into Disability insurance but it doesn’t seem to be worth what it would cost. Any ideas?
    Good post!

  2. So who’s the guest author? ๐Ÿ™‚

  3. Bob

    Oops, not exactly the best introduction ๐Ÿ˜‰ It is Jonathan Milligan, he is a new author, who you will start seeing around a little more… Welcome Jonathan!!

  4. RJ Weiss

    What also works well is setting aside a fixed percentage for certain things. For example, we immediately put 5% towards our Roth IRA’s, 3% to travel, 2% to prepay mortgage. It works pretty well for us.

  5. Jerry

    That is so very true. I’ve owned my own business for a couple of years now and while I love the freedom, if you aren’t careful, it can be a serious cash bleed. Being responsible for your own health insurance and other related business expenses adds a level of stress that wasn’t there when I worked for a regular 9-5.

  6. Julie

    I appreciate this article. Sometimes I feel “lost” in the business owner world. Some people think business owners are rich, and fully self sufficient. (Not always the case) My income is up and down, and sometimes – NONE! Learning how to budget is a NECESSITY, not a luxury. Your article helps me figure this out. Thanks!

  7. Jonathan

    @Julie – You are most certainly welcome. I have become very frustrated in the past at times because I could not find good books that addressed finances from a self-employed point of you. Many financial gurus address it as a side note in their best selling books. In my opinion, more and more people are moving into self-employment as we move further into the “Knowledge Workers Age.” With the coming of the internet, it has given a voice to people who are experts in particular fields. Gone are the days, where you have to “get better at your weaknesses.” People have found that you can work in your strengths and passions and get paid for it. This opens the door for self-employment and keeping more of your own money then handing it off to a boss. That being said, you have to do right by your money and be responsible if you are going to make it.

  8. bondChristian

    I learned #4 from Dave Ramsey. That was a revolutionary (okay, yes, that word’s overused) insight for me. Until then, I didn’t really know how to go about budgeting for an extremely flexible income. Thanks for bringing it up here. The more know these strategies the better.

    Thank you for guest posting. Looking forward to reading more from you.

    -Marshall Jones Jr.

  9. Julie

    In January my husband started his own construction company. We use tips 1,2, and 4 to manage our irregular income.
    We deposit all of our business income into a business account at our bank. We have a checking account, and two savings accounts. 25% goes into one savings for taxes, our “paycheck” and 5% (company expenses) goes into the checking, any extra income goes into the other savings account for future low income pay periods.
    I made a excel spreadsheet for our budget with the expenses listed in order of importance. 1-Church (10%) 2-Taxes (25%) 3-Mortgage 4-Insurance 5-Utilities 6-Gasoline 7-Medical 8-Food 9-Company Expenses (5%) 10-Savings (5%) 11-Car/Home Repairs 12-Gifts 13-Clothing/Entertainment/Misc ($50). Sometimes we only fund to the savings, so we don’t spend money on repairs, gifts, or misc items unless there was money left from the last payday.
    Savings isn’t first on my list because if I don’t have enough to cover the bills I will have to dig into savings, but if I know the bills are covered I won’t touch savings and it will grow ๐Ÿ™‚

  10. Danye

    Really a problem for me, trying to budget without a regular income!

    And I’m an accountant !

    For me, it’s exactly the opposite: even if I have some money, I don’t let any “extra” expense, any special project or vacation, takes a part of my savings, just in case I miss money someday!

    It’s like I know that there are ups and downs, and I don’t know how to set a budget where I will have some pleasure and appreciate my self-employed status. Then, I return to a regular job, with health care, pension plan, vacation, to find that I was happier as self employed! …;-)…

  11. Omar Carreto

    Welcome Jonathan Milligan!

  12. Ricky Willis

    This is a great article. Being self-employed isn’t is and can be a lonely place at times. I find that as long as you meticulously plan ahead and budget accordingly, you’ll be OK.

    – Ricky Willis

  13. I have been self-employed for 4 years now and the first year was very hard to budget, especially my job is not stable. I had one client before that he just dropped me like a hot potato without even telling me that he didn’t want my service anymore. That’s why, I’m really tight on my budget and keep tracking my expenses and income.

  14. Claudia Okma

    Thanks for sharing, I don’t think we can read and re-read and remind ourselves about the importance of budgeting! Even people like myself that have degrees in accounting and finance can struggle probably more so implementing a budget than creating one. It’s truly the follow through that is the hardest. Of the points you made I think #2 is very important in determining what are “necessities” in the budget, some of us can have a very skewed perspective of what these are particularly if they are struggling to stay ahead or even get ahead. I am active in my church helping to lead Dave Ramsey’s Financial Peace course and that really seems to be one of the most difficulties to overcome for some people….prioritizing! Many blessings and keep up with your great, informational posts!

  15. Dave Lalonde

    I really like the idea of rating your expenses by importance. I never tried that idea but it sounds really efficient considering how easy it is to buy anything and everything.

  16. Samirian @MoneyWisdoms

    Thanks Jonathan for these timeless tips. It is suggested that the self employed have up to 12 months of living expenses set aside before they make the decision to leap.. While that may not always be an options, especially for self-employed by necessity, having some sort of cushing in you checking account will help.