5 Financial Influencers Share How They Manage Their Finances Without Regular Paychecks
Written by
G. Brian Davis
Edited by
Zuri Anderson
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The more variable your income, the more difficult it is to budget. But that doesn’t mean you can’t — or shouldn’t — do it. Quite the opposite: Budgeting becomes even more mission-critical when you have fluctuating income.
Follow these tips from financial influencers who don’t just write about budgeting and personal finance, but who also earn an irregular income themselves.
Create an Elastic Budget
“A budget is your number one money tool,” emphasized Hillary Seiler, personal finance expert at Financial Footwork. “Identify your baseline expenses: What you must cover each month with no leeway.”
As someone who earns variable income, you should also keep your expenses more flexible than the average salaried worker. In lean months, you might need to stick with just those baseline expenses, no frills or thrills. In plusher months, you can treat yourself to a dinner out, a new piece of clothing, a weekend getaway.
“When you earn less money than average in a month, cut non-essential costs,” said Leslie Tayne, debt expert and the founder of the Tayne Law Group. “Ask yourself, ‘Am I spending too much money dining out? Can I take up biking to decrease the costs of gas?’ Small, crafty changes can make a big difference in your wallet when your budget is in flux.”
Start with a lean baseline budget — you can always splurge when your income allows it.
Keep a Deep Emergency Fund
Earners with variable income need more of a cash cushion than those with regular salaries. After all, you might need to live on your emergency fund for months at a time if you go through a dry spell.
“Aim for six months to 12 months worth of expenses saved,” urged Josh Richner, founder of FaithWorks Financial, a debt relief agency.
That won’t happen overnight, of course. That could take several years to fully fund, but don’t let that intimidate you.
“Start small and work your way there,” Richner continued. “Building up even one month’s worth of savings can make a huge difference and reduce reliance on credit cards when income slows down.”
Automate Your Savings
Beyond saving for a deeper emergency fund than the average employee, you still need to save for all the major milestones such as retirement and potentially houses, cars, vacations, or helping your kids with college.
Austin Kilgore, a personal finance expert with Achieve, urges workers to set their savings rate as the first expense on their budget.
“With each payment received (whenever and however often that is), set aside a predetermined percentage for savings and investment,” Kilgore said. “Save at least 10%, and many experts suggest 15%, 20%, even 30%. Whatever it is, choose what works for you and stick to it.”
Setting the amount is only the beginning. Now you need to execute and actually set that money aside each month.
“Set it and forget it,” recommended Laurie Hise with Passionate Penny Pincher. “Automate your savings so you do it without thinking.”
And to do that, it helps to give yourself a regular paycheck after all.
Schedule a Consistent Salary
Just because your business or self-employment gig earns irregular income doesn’t mean you have to do the same personally.
“Create a system where you distribute your income evenly, just like a steady paycheck,” advised Seiler. “Set up your savings account so you can pay yourself monthly without draining your reserves.”
As for how much you can safely pay yourself as a “salary,” Richner offers this recommendation.
“Look at your last 12 months of income, remove the highest-earning month, and average the rest,” he said. :If you take out the outlier month, you are left with a more realistic income baseline.”
Set Aside and Pay Estimated Taxes
Without an employer removing money from your paycheck for estimated income taxes, you have to do that yourself. Fail to do so and Uncle Sam slaps you with penalties and interest. Open a separate bank account for taxes and pay into it every month.
“You need sufficient savings to cover estimated prepaid taxes, which most self-employed people pay quarterly,” noted Kilgore.
Keep Strong Insurance
As a debt advisor, Richner sees first hand how people end up over their heads in debt.
“Medical debt is the leading cause of bankruptcy in the U.S. People who rely on a steady paycheck often have built-in protections through their employer: Health insurance, sick days, paid time off. Freelancers and business owners don’t have that safety net,” he explained.
Maintain comprehensive health insurance to protect you from expensive medical bills. If you opt for a high-deductible plan, combine it with a health savings account (HSA) and budget plenty of funds for it.
Richner also recommends self-employed workers consider a disability insurance policy.
“They often cost around $500 a year, and it can be the difference between staying financially stable and facing a crisis if you suddenly can’t work,” he noted.
Conclusion
As an irregular income earner, you need to build in your own consistency and safety nets. Do that, and you can enjoy the same financial security as the most stable salaried employee.
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