How I Budget with (Very Irregular) Self-Employed Income

How I Budget with (Very Irregular) Self-Employed Income

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:

How I Budget with (Very Irregular) Self-Employed Income

If line graphs are more your thing, here’s another way you could look at it:

How I Budget with (Very Irregular) Self-Employed Income

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:

How I Budget with (Very Irregular) Self-Employed Income

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. :)

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  • Think very carefully about the dog because you also like to travel and also the medical bills can be VERY expensive. My rescue dog tore her cruciate (knee) ligament this year and the vet bill was $4000.

    Since you are so great at saving for taxes, what about making the same commitment to saving for retirement? You have heard horrid stories about businesses owing huge amounts of taxes. I work in the medical world and I have heard and experienced horror stories about seniors unable to pay for a safe living environment due to financial reasons so please make saving for retirement a serious priority. Maybe start with putting away 5-10% in an account every time you get paid. You have built up great emergency funds/buffers so you can afford that amount. Invest in a way that feels right to you but ETFs would probably work great with your irregular income.

    If something happened to your business and you were in serious financial trouble, I am sure that you could get a local part-time job to keep you from starving but allow you to continue writing until you were back on your feet.

    • I do save a set amount for retirement each month, Beta! It’s just less than what I used to save when I had a full-time job – but I can’t increase it to that amount yet, because I’m not steadily earning that same income. But I do earn more at the end of Q4, so that’s why I save a smaller amount each month + a lump sum at the end of the year. :)

      • I am so sorry that I insulted you. I misunderstood you in the article and I thought that you were struggling to save for retirement and I offered a possible solution. I have never had an irregular income as I have worked in hospitals for my entire career so I really should have not said anything about something I have no experience about. My sincere apologies.

  • Thank you for sharing this real talk! I have been struggling with how to budget on very little income, i.e. not enough to cover my monthly expenses. For a while, I was depositing all of my random bits of income into my savings account and then transferring enough out to my checking account each month to get it back above its “$0 mark”. I finally switched over to depositing the income into my checking account, to help get back out of the mindset of taking money out of savings. I might even invest some of the funds in my money market account, once I see if we end up with a large special assessment for our condo building next year or not. (I both really hope there is some increase in reserves for the sake of the overall building and future financial security there and sort of hope there isn’t because I would love to have that extra financial security in my own pocket.) I’m fine with my husband paying for more of the current ongoing living expenses, but that special assessment would be to cover things the condo association should have been paying for over the prior 4.5 years I owned the condo by myself and I didn’t pay for.

    • I know that having multiple savings accounts works for some people, but I prefer for my stockpile to be in my chequing account for that same reason: I don’t want to be constantly logging in and moving things around, when it all gets paid from my chequing account anyway!

  • Do you know for many years my salary disappeared in few days and I hadn’t a single think about savings and retirement, then in 2012 I asked a little loan for american holiday and in november I lost my job so I started to read other blogs about budget, savings and finances and I started the importance of these things, I started to have tiny weekly budget and plan all kind of shopping..now that I’m debt free and I have a permanent job plus a side hustle as barista I am still into budgeting because I plan big financial goals to achieve soon. Being on a budget helpped me to discover really nice things free or low cost to do alone and with friends:D

    • I’m so glad you found a system that works for you, Giulia! And I definitely agree: budgeting also helped me figure out how to have cheaper/free fun. :)

  • Great post! I’ve really enjoyed reading about your budgeting strategies over the years.
    I also am budgeting with highly irregular income. I’m a farmer, which if that were my main income would be irregular itself, weighted toward summer/fall. However, my husband and I have been slowly building our farm business with minimal debt, so up until now we have not taken a penny from the farm, choosing to reinvest all our earnings in growing our business (planning to change that next year!).
    That means that we do the majority of our earning at off-farm jobs through the winter. I don’t even think about money on a monthly basis anymore, I plan for the long term. I love using YNAB for our budgeting. I can input all of our normal expenses for the year, including big things like insurance. This year, for example, I put in all our winter/spring income and budgeted it out to last us through November, when we’ll start earning again. YNAB really helps to have peace of mind through those six or so months when we aren’t really bringing in much income. We’ll do lump sum retirement investments in the winter, and still invest small amounts a couple times a month as well!

    • Sounds like a great system, Carissa! And while I don’t have a physical business in the same sense, I have also been investing some of this year’s income back into mine. That goes against my original plan to cut my business expenses in half this year BUT some of these are expenses I won’t have to pay again. Cheers to changing things next year!

  • Thanks for sharing this Cait, I think you’re doing so great- you have freedom to go for a hike if you want during the day and can work when you want- which Is priceless IMO. I’m sorry about your dogs they look so sweet, I love Yorkies/Yorkie mixes. Pet insurance is an option for later on when you get a dog, but not sure if it will not be a good idea for older, adopted dogs since there may be pre-existing conditions.

    • Yea, I’m not sure how pet insurance works for older dogs? Don’t have to think about that just yet (earliest I’ll get a dog is next summer/fall) but it’s something to look into!

  • Hi Cait!
    Thanks for sharing! We recently started viewing our budget annually as well. We are in month four of a mini-retirement year and had to budget for 12 months up front since we have no current income. It’s definitely opened my eyes, allowing us to challenge our spending and savings at a new level.

  • I’m realizing that all of the self-employed people I follow online are either not from the U.S, or have a spouse who still works for a business that offers healthcare insurance. It’s such a huge expense to worry about and makes self-employment a bit trickier for us in the states, as far as I can tell.

    • You’re right about that, Kate. Most of the self-employed people *I* follow are American and I would say about half of them have spouses with health insurance. So there are a lot who do have to pay for it themselves! But I hear of premiums in the $300-$600/month range, and I only have to pay $75/month here in BC. That being said, I still pay for other things out of pocket: prescriptions, massage therapy, physical therapy, etc.

  • Thanks so much for sharing this!

    I am working on a new system with my money. Usually I pay this month’s bills with this month’s money. Then, at the end of the month, I put whatever is left toward savings, retirement, taxes, etc. However, last month was a particularly good month for me so I’m letting the extra sit in my checking account and plan to use it for next month’s bills. Eventually, I am hoping to be able to pay all of one month’s bills with the previous month’s money.

    Nothing ground-breaking here, but a new approach for me!

    • Sounds like a good approach, Maryalene! Technically, I guess I’m always living on income from previous months, because my chequing account just always has a big chunk of money in it…

  • Woah! That’s a roller coaster! An irregular income is one of the biggest downsides of being self employed. That was the main reason why I was so afraid of majoring in anything arts related in uni even though I love to draw and write. I’m just starting on my “let’s see what kooky stuff I get into on the interwebz” journey now. It’s definitely not for the faint of heart, noooooope. The best thing (at least to me) is how much the instability will motivate good saving habits and nurse that more than a traditional 9 to 5 joe-job would. That’s a huge silver lining to me. The first job I got out of college was super irregular and that taught me a lot about saving properly. Case in point, I don’t meet a lot of successful entrepreneurs that live paycheck to paycheck. They save like mad first!

    • “instability will motivate good saving habits and nurse that more than a traditional 9 to 5 joe-job would.” <-- YES TO THIS. I have never been better with money in my life. Never. Even though the numbers are so up and down, I'm in the best financial position I've ever been.

  • Thanks for sharing Cait. We’re a freelance household, with a mortgage and one young child. Our income can also vary a lot month to month. Our way of managing it is to pay ourselves a set amount each month. We have a buffer to draw on if our earnings are down for the month, which we replenish when earnings are over. We are very careful before committing to any ongoing expenses, instead paying cash. We actually decided to get rid of credit cards about 3 or 4 months ago, as we weren’t great at paying them completely off. I was reluctant, but I haven’t missed having one so far.

    • That sounds like a great system, Amy! And good that you know you’re better off using cash. Always best to do what you know is right for you. :)

  • Cait the amount of careful planning you have put into this is commendable and impressive. Your early starts of just being a regular person digging out of debt is what will see you be successful in business. Often people that jump into business don’t have the financial restraint and knowledge base how to properly save and budget. This is where you shine.

    Can I also say I love the new look and feel of your blog. The simplicity and layout as well as content have been very enjoyable lately.

    Cheers

  • Hi Cait ! – I’ve been following your blog for a few years after hearing the Slow your home podcast (I’m in Australia) and your posts and emails are always so delightful and thought-provoking, I’m sorry I haven’t messaged to say so before! So, thank you! I lived in Ottawa last year and I miss Canada a lot and so I’m especially curious and interested by how things are different in Australia. So I have a few q’s and I’m sorry if they’ve been answered before. Just wondering what you refer to by a retirement savings? Is this a long term bank account that you manage due to self-employment? In Australia we have ‘super annuation’ – our employer makes contributions to a retirement fund for us (from my limited understanding of it). Not sure if you have this too? I’m just wondering if I should self-manage something similar because my super is eaten way in fees from inconsistent income. And what is a personal and business card – are these credit cards? I know credit cards seem popular in Canada but for me, and many friends they seem too risky financially. Thank you x

  • This was such a relevant post for me! We are self employed and our income is very irregular. My budgeting is so complicated because I’ve got a business cash flow, household budget and cash flow plus I have to think about savings and taxes! It’s getting close to the end of the year and I’m hoping we can login into a tax website and sort of simulate our taxes and figure out how much to save in tax advantaged accounts. In 2014 and 2015 we earned a touch over $100k gross and then in 2016 we earned closer to $80k gross. The interesting thing about that was that when we earned $30k more we paid almost $10k in taxes and $7,500 for our Obamacare plans plus we had greater business expenses. When we earned less money it worked out that we not only owed no taxes but we got a $5,500 refund for overpaying for our Obamacare plans. So $15,500 of that next $30k in salary goes to the government. You definitely need to be your own Chief Financial Officer to get the tax code, cash flow and budgets all aligned!