How To Budget An Inconsistent Income
One of the biggest hurdles of being a business owner is figuring out how to pay yourself and how to budget your income when it's not always consistent! How to save, how to pay your bills, and how to not stress about money. Just to clarify there are all kinds of ways to budget but this is what I've found to be best for me.
Break Down the Numbers
What's the bare minimum you have to have to get by each month? This includes things like housing, food, transportation, and insurance. Once you've found this number you have a starting point. I also include my minimum saving goals in this number to ensure I'm always making contributions to my Roth and SEP IRA, this isn't necessary but long term savings will put you so far ahead!
Once you've found these numbers and done the math make sure to multiple your number by 1.15! This will add 15% to your baseline and serve as a buffer incase your staple necessities fluctuate.
Create a Safety Net
You now know what your bare minimum is and that's an important first step but as we've discussed your income isn't the same every month! So, what if you don't make enough money to meet your bare minimum one month? You pull from your buffer account. I have a second savings account for this specific purpose. I had put a small portion of my income in until I reached three months of baseline in my account. During months that my sales are high, I add an additional portion of those extra dollars into my safety account and when sales are low I pull from this account and don't spend past my baseline! I created this safety account before I went full-time because I had no idea if my income was going to be reliable or not and it's been a life saver on a few occasions! Don't be nervous to pull from it but on months that you are making more don't forget to replenish what you've used! If you're having great months and can set aside more it's always good to have more than three months set aside incase of an emergency!
Use Last Months Pay
After I take care of my absolute necessities I typically have a chunk of change left! Woohoo! This is how I figure out how many dollars are left for discretionary expenses the following month. By setting aside money to be used the next month it means I'm never spending money I haven't made yet and it also means I can prepare for months that I don't hit my baseline. This form of budgeting is referred to as 'Zero Sum Budgeting' if you want to do more research on your own!
I've limited myself to a specific amount of discretionary spending a month. If I have more than that number when I look through the months budgeting, I deposit it into a long-term savings account. Once again, this is optional but I think it's an easy way to get further ahead!
Use a Bonus System
I take 30% of every check I receive and put it in an account that is specifically for tax savings. It's my version of a business pulling taxes out of a paycheck. As the year goes on that account grows and when it comes time to pay my taxes I'm almost always ahead! The best part of being ahead? Whatever is left in that account is that quarters bonus! I prefer to put my bonus straight into my savings but don't be afraid to splurge. You've been working hard!
Holding yourself accountable isn't easy but in my experience is always worth it. If you can stick to a budget and set aside savings you will end up easing loads of stress! Not only that, you'll be able to focus on your business instead of your bills!