At every stage in my working life, I have had a different budgeting strategy. For the first 10 years, I usually just spent all my money within a few days of getting paid. My budgeting strategy involved taking a sticky note, writing down the amount of money I was getting on payday at the top, then subtracting all the amounts I knew I was going to have to payout. At this stage, I considered myself lucky if I had even $50 leftover. But that wasn’t enough money to have “fun”, so then I used credit to pay for a lifestyle I couldn’t afford—and eventually found myself maxed out with nearly $30,000 of debt.
In 2011, I had to get serious about my financial situation, and that included adopting a new-to-me strategy: budgeting. Like, at all. Up to that point, I had never written a monthly budget in my life. But we all have to start somewhere, and for me the starting line was in 2011. After getting used to budgeting with a job where I was paid bi-weekly, I wrote two basic posts about how I wrote my monthly budgets and even advised you on how you could create your own. And in 2015, I had a full-time job where I was getting paid twice/month, so I changed my strategy to one that involved budgeting monthly, semi-monthly and weekly.
In the four years that I was budgeting with a full-time salary, the process always revolved around one thing: figuring out what I was going to do with that month’s income. It didn’t really matter how much I earned or how often I got paid. There was always a set amount of money coming in each month, and my job was to figure out what to do with it. When I announced that I had quit my job in June 2015 to work for myself, I knew my budgeting strategy was going to change again. I knew this, but I didn’t understand just how much it was really going to have to change. The first lesson I learned: there is no such thing as living on each month’s income.
For the first six months or so, this might have been possible. Do you remember when I tested out writing monthly income reports? Here are the ones from July 2015, August 2015 and September 2015, to refresh your memory—and please excuse the old shopping ban updates! I quit publishing these reports a few months later, after realizing I didn’t want to become a blogger who talked about how to make money online. (Cheers to growing your blog your own way!) The numbers were somewhat consistent: after taxes, I was usually “taking home” $3,000-$4,500. So technically, I could have budgeted and lived with one month’s income, for a while.
That was what I had prepared myself for. Before I quit my job, I was constantly running calculations and creating spreadsheets for how I would manage my finances with irregular income. But what I didn’t prepare myself for was just how irregular things would eventually become.
What Self-Employed Income Really Looks Like (for Me)
It started in late-February 2016, when I had my hip surgery and took most of the next two months off work. In order to do that, I did what felt like double the work in January and February, so I could stockpile some cash and feel comfortable putting all my energy into recovery. It paid off. I managed to complete all my physical therapy in just 3.5 months versus 6, and started working more regularly again in May. Then I repeated the work hard/take time off thing in the summer, so I could enjoy my road trip throughout the US. This budgeting strategy felt completely foreign to me—stockpiling and taking time off—but I was enjoying the freedom that came with it.
Looking back, working that way for a year also prepared me for one very important project: my book. I know everyone’s productivity tips and writing schedules are different, but personally, the book helped me realize that I am someone who likes to dive deep into one project. Cheryl Strayed calls it binge writing, and while I consider myself a mindful consumer now, I am still very much a binge creator. Unlike when you’re trying to manage multiple clients with multiple projects and multiple deadlines, binge writing allows you to put all your energy into one piece. The payoff for that can be huge, but it does mean your income will dip while you’re working.
For those who would benefit from seeing the numbers, here’s what my income has looked like so far in 2017:
If line graphs are more your thing, here’s another way you could look at it:
When I look at both of those charts, I don’t see the numbers. I see what was happening in my life, both personally and with work. In January, I was finishing the first draft of the book and, therefore, didn’t do any client work. I earned money from Mindful Budgeting sales, but that’s it. In March, I moved to Squamish and then had my first breakdown of the year and started going to therapy. In May, I opted out of client work again, in order to finish my first big round of edits to the book. The girls had also been sick that month, so I wanted to spend all my spare time with them. Three days after I submitted the second draft, I lost Molly—and nine days later, Lexie too.
The day Lexie died, I told all my clients I was quitting freelance. I know you’re not supposed to make any big decisions when you’re grieving, but that was something I’d been questioning for months and I knew I wasn’t going to bounce back quickly from the losses. That was the beginning of a long, sad summer for me. But the quitting part—that was easy. It helped that I knew I had two big paycheques still coming: a portion of my book advance, another for my audiobook deal, and then some sales from A Simple Year and Mindful Budgeting later in the year. But the summer was long and sad, and I earned less than $3,000 in 3 months.
How I Budget with (Very Irregular) Self-Employed Income
Before I quit my full-time job, my monthly budgeting strategy could’ve been broken up into a few simple steps:
- pay off both credit cards (personal and business)
- invest set amount for retirement
- stockpile what was leftover, invest extra lump sum for retirement at end of year
It was a lot easier to pay off my cards completely, save for retirement and have extra money available, when I knew there was more money coming in every couple of weeks. And not just “more” money—the same amount of money every payday. Spending, saving, and investing felt so much easier back then.
This year, it has looked more like this:
- set aside 25% for taxes
- pay off personal card monthly
- pay off business card every 2-3 months (sometimes carry a small balance)
- invest smaller set amount for retirement monthly
- stockpile what is leftover so I can repeat these steps every month until the next big payday
- do some quick tax calculations before I invest an extra lump sum for retirement at end of year
In writing that out, it’s fascinating for me to look at how many mindset shifts I’ve had to make over the years. First, being self-employed means you absolutely have to become a saver—at least for your taxes, if nothing else. I’ve heard way too many horror stories of small business owners not saving enough for tax time then getting hit with $10,000-$25,000 tax bills. That would bankrupt some people. In becoming a saver, it’s also interesting how important the balances of all my bank accounts is to me now. I don’t feel “safe” unless I have at least $15,000 cash ($10,000 in savings + at least $5,000 in chequing). I also have my tax money but that’s totally separate.
The other mindset shifts I’ve had to make are around carrying debt and investing. Re: the business credit card I don’t pay off monthly anymore, that’s new for me this year. And the mindset shift is this: I have the money, but I don’t want to touch my savings unless I absolutely have to. This goes against the usual personal finance advice you’ll read out there. But having the savings is more important to me than being charged a little bit of interest (and the interest I earn on my savings far outweighs what I’ve been charged). And I’m not continually adding to my debt, digging myself into a hole. There have just been a few months where I’ve carried a small balance over and been charged interest for it. Whenever a big payday comes, I pay it off. This feels ok to me, right now.
I’ll write about my investing strategy closer to the end of the year, when my numbers are more final. Right now, I can tell you that choosing to adopt an abundance mindset and apply it to my investing strategy has been working for me! I haven’t invested as much as I’d like, but it’s relative to my total income.
And I think that’s the point I want this new budgeting strategy to reflect: it’s about my total income now, not my payday income or monthly income anymore. I can’t rely on monthly income, because that’s not how I’ve setup my revenue streams. Instead, I have one small monthly source of income, and then a handful of bigger ones paid sporadically throughout the year. Knowing that, I can’t maintain my old budgeting strategies. Instead, my behaviours are more like those of a squirrel now. When I get a good source, I make sure my immediate needs are met and then stockpile what’s leftover so I have enough to survive for a few months.
Considering that I focus on my total income now, you might be curious to see how it’s broken up each quarter:
As of today, I’ve earned a little over $51,000 in 2017—and I’ve earned almost the exact same amount each quarter, so far. (The quarters being those in your usual calendar year: Jan-Mar, Apr-Jun, Jul-Sept, Oct-Dec.) Those numbers will change soon, though. Since being self-employed, Q4 has always been my highest-earning time of year. I know I’ll earn at least $15,000 more this quarter, but there’s potential for that to double or even triple with the new Mindful Budgeting. That means my total income for the year will be a minimum of $66,000, which is an average salary here. But if Mindful Budgeting does well, it could be closer to a six-figure salary.
If that happens, my new budgeting strategy would require me to save more for taxes, pay off my cards, then help me make a lump sum investment for retirement and stockpile the rest for however many more months it’ll be until my next big payday. Because that’s what life looks like now: there are months with big paydays and months with little-to-no income at all. Before I quit my job, I hadn’t prepared myself for this. And I will say, it is not for the faint of heart. I still have moments when I don’t feel comfortable with how irregular it is or when I hate not being able to save more on a regular basis. But that’s not where I’m at in my business yet. This is.
I would love to get to a place where I’m earning $90,000+ every year because I’ve done enough calculations to see that’s the amount that would allow me to run my business, pay my taxes and invest the amount I really want to for my future. That’s the one big thing earning irregular income has affected: the future. That includes owning a small home one day and being able to adopt any dog (no matter what medical costs they have) and at least semi-retiring (I’ll probably write forever but don’t want to rely on income forever). I’m obviously all for living in the moment, and am enjoying growing this blog and my writing business slowly my own way, but I also care about the future. This post has gotten long enough, but we’ll talk about that more later this year too.
For now, I will say thanks for being part of this ever-evolving journey with me! I love being able to share these things with you, and I love that we can learn from each other and grow together here. Having honest money conversations is going to be a big part of the work I’ll be doing in 2018. Consider this just the beginning. :)