How to Budget Like a Boss When You're Self-Employed

How to budget like a boss when you're self-employed. Tame variable incomes and the cash-flow rollercoaster! 

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 your client pays you late. What would change? 

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?

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

    • 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).

    • 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?

    • 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.

    • 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.

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. 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 favorite 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!