Pauline E. Ranger Expense planning for freelancers, small business owners, and others with inconsistent income
We welcome all entrepreneurs, freelancers, and small business owners! You’ve probably found this article because other budgeting tools don’t work for you. Since I’ve been in personal finance for so long, I’ve found that almost all budgeting worksheets and finance gurus only work if you earn a regular income. How to budget with an irregular income
Calculate your essentials
Spending Tracking
Calculate your baseline costs
Spending plan
Keep adjusting
Stick to your guns
Build your buffer for off-contract work
Calculate Essentials
Add all the expenses that you must pay in a month. Essential costs encompass your non-negotiables. Rent, groceries, phone, utilities, Internet, etc., are things you cannot do without, whether you’re a freelancer or small business owner. Spotify Premium, Netflix, or a monthly massage appointment are not included in the essential category. You don’t have to eliminate these; we will just move them into a different category. Add up all the monthly costs and write down each essential. This amount should be circled. Later, we’ll get back to this amount.
Track spending
After you have covered your essentials, it is time to consider your flexible costs. We can reduce these costs by observing how they fluctuate monthly. Write down all your purchases for a month. The first step is not budgeting or cutting back on anything. It’s just tracking and observing. This includes every grocery purchase, Target trips where you “just wanted to grab one item” and ended up with twelve, coffee purchased on the way to work after you spilled the first one, etc.
It is also helpful to me to record the dates of my purchases. It will be easier to calculate your weekly baseline if you do this. If you feel you have forgotten something, go back and check your credit and bank statements. Track and observe for a whole month.
Find your Baseline
We can now begin the analysis! Add up all of your flexible expenses for the last month. Have there been any unexpected expenses? Are you surprised by your totals? You may have paid a fee to use a service you do not use.
Sort everything into categories. You will have your categories based on what you do and how you live. My categories look like: “food/groceries,” “alcohol,” self-care,” date night,” donations, and “misc.” I don’t go out to eat that often, so that’s not a category I need. However, I often buy face masks and other puzzles, which is why I have categorized it as self-care.
Add up all the numbers and think about how you feel. You may have expected drastically different results. Do you feel stressed when you look at them? You feel more relaxed after viewing them. Now you have something on which to base your next steps.
Create an Expenditure Plan
The word budget implies deprivation, and I don’t like it. We will not eliminate things from our lives but rather give our money new jobs. I won’t tell you to stop doing the things you enjoy, such as getting your favorite Friday morning latte from your local coffee shop or buying that cozy pajama suit you’ve been eyeing online (as Matt Bellasai stated, “been drinking coffee at home for two months instead of going to Starbucks which according to economists would’ve made me billionaire by now, so what’s happening?”).
It is unnecessary to eliminate all items that do not fall into this category. You want to spend money on things that you love. Do you love shopping at Trader Joe’s? You can shop at Walmart to save money on your monthly candle purchase. You want to revamp your website but don’t know if it will require a professional. If your marketing campaign hasn’t succeeded, you can pull it and use the money to revamp your website.
You will not be able to make this change in your financial lifestyle if you eliminate everything that makes you happy. It will be unsustainable if it doesn’t feel sustainable (the same as crash dieting).
You can still save money, but you shouldn’t spend all your money. These savings will allow you to maintain your lifestyle and spending plan even when between jobs and paychecks.
Keep Adjusting
Once you’ve created your plan, put it to the test for a whole month. After a month, review your expenses. You may have allocated too much to “groceries” and not enough for “alcohol.” This is what happened to me in the first month. You spent more than you had planned? What caused the extra cost? You may have spent more than necessary or need to add more money to your budget.
Always review and adjust the budget. As freelancers, our lives are constantly changing. This means that our spending also changes. You may not spend much money on gas when you travel out of town for a job, but more on drinks with your colleagues. Plan!
Don’t Give Up
Stay consistent in your spending, whether expecting a large paycheck for a job lasting two months or having no clients/jobs for the near future. When you have a big paycheck coming, don’t go overboard. This will allow you to build up your savings and not fall into starvation when there is no paycheck.
Consistency is key. Savings will grow when you have an extra paycheck. You can save money when you do not have a paycheck.
