![\"\"](\"https:\/\/www.getrichslowly.org\/wp-content\/uploads\/istock_000019085182small.jpg\" "\\"Budgeting")
<\/a><\/div>\nBut as someone who has transitioned into that role full-time, there are certain things I do miss about having an employer:<\/p>\n
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401(k) match<\/p>\n<\/li>\n
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Insurance benefits<\/p>\n<\/li>\n
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Free coffee<\/p>\n<\/li>\n
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Office buddies<\/p>\n<\/li>\n
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Income stability<\/p>\n<\/li>\n<\/ul>\n
Last year, I freelanced, but my monthly income was more or less the same — and, if not, it was easy to predict. This year, as a true freelancer with multiple clients, there are a lot of things that affect my budget (like how long it takes for a client to pay, for example) and they’re mostly out of my control.<\/p>\n
For the most part, my income doesn’t vary too<\/em> much from month to month. When I was in between work at the beginning of the year, however, it was a different story. Either way, here’s how I budget with an irregular income.<\/p>\n
Zero-Sum Monthly Spending<\/h2>\n
Zero-sum budgeting has always been my method of choice. I was using this method before I even knew it had a name. I find it works well with financial goals like saving or getting out of debt.<\/p>\n
In her post<\/a> on this topic, Holly Johnson outlines the steps to create a zero-sum budget. It involves listing all of your expenses, budgeting for them, and then putting the excess to work. Every dollar has a duty. For a monthly amount to budget against, I simply use the lowest amount I’ve earned in the past six months. I would go for the past 12 months, as J.D. recommended in his own irregular income post<\/a>, but I was in emergency mode in January, so that amount is pretty low already.<\/p>\n
I zero-sum budget according to that amount, and my excess income goes toward my savings goals. It used to go toward debt goals.<\/p>\n
Checking Account Cushion<\/h2>\n
I’m too lazy to figure out how much I need to have in my checking account at various times during the month — after rent, after bills, etc. — so I simply keep a checking account cushion that’s more or less equal to the amount of my monthly living expenses. This helps ensure that, even after rent, I have enough in my checking to cover bills. Once I’m paid, and the amount in my checking exceeds my monthly expenses, I then transfer it to savings.<\/p>\n
My Savings Method<\/h3>\n
I have a few different savings accounts:<\/p>\n
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A high-yield online account<\/a> (for estimated taxes and my emergency fund)<\/p>\n<\/li>\n
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Traditional IRA (I want to switch to a Roth<\/a> soon)<\/p>\n<\/li>\n
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SEP-IRA<\/a> (extra retirement account if I max out my traditional IRA)<\/p>\n<\/li>\n
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Taxable brokerage account (for a medium-term goal)<\/p>\n<\/li>\n<\/ul>\n
Here’s what I do:<\/p>\n
First, I have a baseline amount, a “cushion,” of $5,000 in my online savings. This is my emergency fund\/estimated quarterly taxes account. If an emergency were to arise, I feel confident that this would be enough to get me by until I could …<\/p>\n
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- find extra work<\/li>\n
- pull money out of that taxable brokerage account (or)<\/li>\n
- replenish it by saving more.<\/li>\n<\/ol>\n
(Note<\/strong>: When I was paying off debt and I didn’t have a brokerage account from which to draw, I had much more in my emergency fund. As my finances became more secure, I pared down this fund. Lisa Aberle wrote about this concept in her post on emergency funds<\/a>.)<\/p>\n
I save for about three to four months in this account; so during that time, ideally I will have more than the baseline amount. I think of it as a holding account, basically. And after I have saved up enough to invest, I take the money out, invest it, and leave the $5,000 baseline amount in the account.<\/p>\n
My savings goals are simply to max out my retirement each year, save X amount for a medium-term goal, and then save the rest in my SEP-IRA. So when I’ve hoarded enough in my holding account, I save the surplus according to where I’m at with those goals.<\/p>\n
Estimated Taxes<\/h3>\n
Maybe you’re wondering what I do come quarterly tax time when I have to write a big, tear-soaked check to the IRS.<\/p>\n
Let’s say I have $5,000 in my regular online savings come tax time. First, I calculate my estimated quarterly taxes. I estimate what I expect to earn for the year and then consider what I’ve already paid them. Let’s say the quarterly amount I owe is $3,000. I now have $2,000 left in my online savings — which is below my baseline amount. I simply keep saving until I get back to my safety number of $5,000. Then I go back to my system and save accordingly.<\/p>\n
In his post, J.D. recommended creating a “business” account, separate from your personal account:<\/p>\n
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