Get Rich Slowly has a great post on How to budget for an irregular income; it’s definitely worth a read on your coffee break. Two of J.D.’s tips that I particularly agree with are:
- Use separate business and personal accounts and pay yourself from the business account as if you were an employee. I started doing this about three years ago and it made a huge difference in my financial life. I pay myself equal amounts on the 5th, the 15th and the 25th of each month regardless of how much I’m earning. I’m not really given to overspending, but sometimes when I have a large “windfall” project, I give myself 10% of the money to spend on something I want but don’t really need. Otherwise I stick with the “salary” that I’ve set for myself and at the end of the year, I evaluate what amount I should pay myself for the upcoming year. If I have a big surplus in my business account, I take it as corporate profit (because I have an S-corporation) and pay that month’s personal credit card bill with it (and as we talked about in last winter’s post on Freelance frugality, I think that the number one principle of personal finance is to never, ever carry a credit card balance).
- If you have a spouse/partner, live off one income. The Thoughts on Translation household lives off one income and banks the other, which gives us a great deal of financial flexibility. If I have a very slow month, instead of putting the groceries on credit we just don’t save as much of my husband’s salary as we otherwise would have. I feel that an additional benefit of this strategy is that I can avoid taking low-paying work out of desperation, and inevitably the higher-paying work comes back. Granted, in order to do this we have made some choices that other people probably can’t or don’t want to make. One car (used, paid for in cash), prepaid cell phone, no cable TV, no household service providers (lawn, cleaning, child care etc.), maybe one meal out per month, virtually all clothing and household items purchased used or on mega-sale, lots of homegrown food, etc. However, all of these steps have allowed us to live pretty comfortably on one (sometimes irregular!) income.