Irregular Income

Budgeting with an irregular income

Expense Planning for Freelancers, Small Business Owners, and Others with Inconsistent Income

Welcome freelancers, entrepreneurs, small business owners, and the like! The fact you have found this post means other budgeting resources don’t seem to work for your lifestyle. I have been deep in the personal finance world for a long time, and almost every finance guru or budgeting worksheet I’ve come across only works if you have a steady income. Here’s how to budget on an irregular income.

  1. Calculate your essentials

  2. Track your spending

  3. Find your baseline expenses

  4. Create a spending plan

  5. Keep adjusting

  6. Stick to it

  7. Build your off-contract buffer

Calculate Essentials

Add up everything that you absolutely have to pay for in a given month. Essential costs encompass your non-negotiables. Whether you are an independent contractor, a freelancer, or a small business owner, the things you absolutely cannot cut out include rent, groceries, phone bills, utilities, internet, etc. The essential category does not include things like Spotify Premium, Netflix, or a standing monthly massage appointment. I’m not saying you’ll have to cut these out, but we’ll just put them in a different category! Write down every essential and add up the total monthly cost. Circle this amount. We’ll come back to it later!

Track Spending

Now that we have our essentials taken care of, take time to look at your flexible costs. These costs can fluctuate month to month and allow us to cut down on them. For one month, write down every single purchase you make. This step does not include budgeting or “cutting-down” quite yet, just tracking and observing. Every grocery store haul, that Target trip where you “just had to grab one thing” that turned into twelve, the coffee you bought on your way to work because you spilled your first one walking out to the car, everything!

I find it helpful to note the dates of purchases as well. This will make it easier to find your weekly baseline later. Go back and look at your bank and credit card statements if you think you forgot something. For one whole month, just track and observe.

Find Your Baseline

Now we get to analyze! Add up the entirety of what you spent on just your flexible costs for the past month. Did any unexpected costs pop up? Do you feel surprised by the totals, whether high or low? Did you pay a fee for a business service that you don’t actually use?

Try to sort everything into categories. These categories will be unique to you and what your lifestyle looks like. For example, mine looks like this: “groceries/food”, “alcohol”, “self-care”, “date night”, “donations”, and “misc”. I don’t eat out that much, so I don’t need that category, but I do buy a lot of face masks and puzzles, hence the self-care category.

Once you have your categories sorted, add up the totals and take stock of how you feel about the associated numbers. Did you expect drastically different numbers? Does it stress you out to look at it? Do you feel calmer after looking at them? You now have something to work off of for the next steps.

Create a Spending Plan

I hate the word “budget.” It insinuates deprivation and scarcity. When we create a spending plan, we will not cut things out of our life, but instead, give our dollars different jobs to do. I will not tell you to cut out the things you love, like a Friday morning latte at your fav local coffee shop or getting that cozy pajama set you’ve been eyeing online (as Matt Bellasai said, “been making coffee at home instead of getting Starbucks for two months which according to economists should’ve made me a billionaire by now so what is happening”).

You don’t want to cut everything out that does not fit into the “essential” category. Instead, you want to plan to spend your money on the things you really love. Does shopping at Trader Joe’s make you extremely happy? If not, can you shop at Walmart instead in order to allocate more money to your monthly fancy candle purchase? Do you desire a website revamp that would require hiring a professional? If you have a marketing campaign that hasn’t had much success, pull the campaign and put that money towards the website.

If you cut out everything that brings you joy, you will not succeed in making this financial lifestyle change. If it feels unsustainable, it will turn out that way (the same reason why crash dieting doesn’t work).

That said, you can’t indulge in everything, because the goal remains to have more money in your pocket to put towards savings. Critically, these savings allow you to keep your same spending plan and lifestyle even while between gigs and paychecks.

Keep Adjusting

Now that you have your spending plan, try it out for a month! At the end of the month, analyze your spending again. Did you allocate too much money to “groceries” and not enough to “alcohol”? Because that definitely happened to me during the first month of quarantine. Did you go spend more than you planned to? Where did those extra costs come from? Did you spend more than you really needed to or do you need to put more money into your plan?

You should always review and adjust your spending plan. Our lives as freelancer entrepreneurs constantly fluctuate, meaning our spending will too. While traveling out of town on a contract, you may not spend much money on gas to drive, but you might spend more money on drinks out with the people you work with. Plan for it!

Stick To It

Whether you have a big paycheck coming in for a two-month gig or have no clients/jobs lined up for the foreseeable future, stay consistent with your spending! Not going overboard with spending when you do have a paycheck coming in will help you bulk up your savings account and allow you to not go into starvation mode when you don’t have a paycheck coming in.

Consistency remains key. The extra money you don’t spend when you do have a paycheck will start building up in your savings account. And that will help you when you don’t have one.

Build Your Off Contract Buffer

After a few months, you will start to see patterns ebbing and flowing. You will see the range between your low-spending months and your high-spending months and figure out your monthly average.

Have you heard people talk about an emergency fund? It is normally recommended to have 3-6 months of living expenses stored away for emergencies so that if you lose your job, you can still sustain yourself during the hiatus. But wait a minute…I spend most of my life on hiatus. For freelancers and small business owners, joblessness and slow seasons do not qualify as emergencies. These are inevitable!

In such circumstances, in addition to an Emergency Fund, you need to build an Off-Contract Buffer. That 3-6 months of living expenses discussed earlier? Put that into your Off-Contract Buffer. How much money should that amount to in total? You can figure out YOUR amount based on the tracking/planning you did during the past few months!

Multiply your monthly average by four, and you have the amount you need to sustain yourself for four months without an income. Even if you are able to snag a survival job between paychecks, there will be times when you are unable to. Or if you flat out don’t want to.

As you begin this journey, give yourself grace. As humans, we will mess up, but taking back control of your financial life should make you feel proud! As you adjust month to month and get more comfortable with the process, you will begin to feel much more in control. You know where every single dollar goes! You will start to have unexpected mindset shifts. Don’t let that surprise you!

Do you suddenly want to start packing your lunch instead of eating out in order to see your savings account blow up next month? It may feel awesome to cut out one or two non-essential categories to make that happen. Personal finance is just that: personal. Don’t let a middle-aged finance man tell you to cut out your joy in order to gain financial freedom. He probably has an office job and a mortgage. Our lives look different! Spend money on what makes you happy, don’t spend money on what doesn’t, and watch your savings account grow.

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Disclosure to Client for HUD Housing Counseling Services

Debt Reduction Services, Inc. and its financial education arm, Money Fit by DRS, offer the following housing counseling and educational services related to housing, personal finance, and bankruptcy certificates to consumers:
  • Housing Education Courses: DRS offers many online self-guided education programs classified as Financial, Budgeting, and Credit Workshops (FBC), Fair Housing Pre-Purchase Education Workshops (FHW), Homelessness Prevention Workshops (HMW), Non-Delinquency Post Purchase Workshops (NDW), Predatory Lending Education Workshops (PLW), Pre-purchase Homebuyer Education Workshops (PPW), and Rental Housing Workshops (RHW). These courses help participants increase their knowledge of and skills in personal finance, including home affordability, budgeting, and understanding the use of credit, as well as predatory lending, loan scams, and other fraud prevention topics, fair housing, rental topics, pre-purchase homebuyer education, non-delinquency post-purchase topics including home maintenance and/or financial management for homeowners, homeless prevention workshop, and other workshops not listed above relating to personal finance and housing. Course details are found below under “Housing Workshops.”
  • Home Equity Conversation Mortgage (HECM) Counseling (RMC): Via telephone and virtual platforms, we offer the required HECM counseling nationwide in addition to in-person counseling in Boise, Idaho. We also offer in-home counseling options in thirty counties across southern Idaho for an additional fee to cover our travel and additional staff time costs.
  • Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase) (FBC): Clients receive counseling and materials on the proper maintenance of their home and mortgage refinancing. Clients can find help and resources by phone, in our Boise office, or virtually on all topics related to stabilizing their long-term homeownership.
  • Services for Homeless Counseling (HMC): Clients receive phone, virtual, or in-person (Boise) counseling to evaluate their current housing needs, identify barriers to and goals for housing stability, establish a path to self-sufficiency, and connect with emergency shelters, income-appropriate housing, and/or other community resources (e.g. mental healthcare, job training, transportation, etc.).
  • Pre-Purchase Counseling (PPC): Clients receive counseling through the entire homebuying process. Assistance may involve creating a sustainable household budget, understanding mortgage options, building their credit rating, and putting together a realistic action plan to set and achieve homeownership goals.  Additionally, clients will receive materials and resources about home inspections and other homeownership topics relevant to successfully maintaining a home.
  • Rental Housing Counseling (RHC): Via phone, in-person appointments (Boise, ID), or virtual platforms, clients receive housing counseling relevant to renting, including rent subsidies from HUD or other government and assistance programs. Topics can also address issues and concerns having to do with fair housing, landlord and tenant laws, lease terms, rent delinquency, household budgeting, and finding alternate housing.
DRS also offers the following services:
  • A Debt Management Program (DMP) for consumers struggling to pay their credit cards, collections, medical debts, personal loans, old utility bills, and past-due cell phone accounts;
  • The Budget Briefing and Debtor Education Certificates that are required during the Bankruptcy filing process;
  • A Student Loan Repayment Plan Counseling and application service.

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Through such services, DRS has established financial relationships with hundreds of banks, credit unions, and creditors such as American Express, Bank of America, Barclays, Capital One, Chase, Citibank, Credit One, Discover, Synchrony, US Bank, USAA, Wells Fargo, and others.

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The client is not obligated to receive, purchase or utilize any other services offered by DRS or its exclusive partners to receive financial education or housing counseling services. Alternatives: As a condition of our counseling services, in alignment with meeting our client services goals, and in compliance with HUD’s Housing Counseling Program requirements, we may provide information on alternative services, programs, and products available to you, if applicable and known by our staff. Alternative DMP services include negotiating better repayment terms directly with your individual creditors, paying your debts as agreed, or, in extreme cases, filing for personal bankruptcy. Alternative credit and education services can be found through MyMoney.gov or the Jump$tart Clearinghouse of online financial education resources. Housing counseling alternatives can be found through HUD at www.hud.gov/findacounselor.
Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.

Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

RentalFair HousingPredatory Lending / HOEPAPost-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. creditbudgetinghomeless preventiondebt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).

Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

RentalFair HousingPredatory Lending / HOEPAPost-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. creditbudgetinghomeless preventiondebt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).