Self Employed
You’ve been warned by your parents, grandparents, friends, sisters, and brothers about working for yourself. You have given up the once a week paycheck for something a little more demanding, challenging, liberating and rewarding.
There’s good and bad with just about every choice. One of the perceived negatives of your lifestyle is an irregular income. When all is going as you dreamed, you may feel as though you are a Rockefeller. On the other hand, there are some lean times, too, and you could feel like a poor Dickens’ character.
The fundamentals of budgeting
There are two kinds of people in the world: those who love budgeting, and those who hate it. If you count yourself among the latter category, know this: it’s crucial to develop a budget plan and stick with it. It’s even more urgent to manage your resources if you don’t have a regular flow of money coming in each month.
Though you may not know it now, budgeting will make your life better in unforeseen ways. It’s a powerful tool to help the finances of the self-employed. Not only will it help you discover if you are spending too much money, but it will also identify the areas where you are overspending. So, the first rule of budgeting is simple: just do it.
At first, it may seem odd writing up a variable income budget. It could be akin to the way you felt your first time on roller skates, or your first time ordering at a fancy restaurant. Eventually, though, you will get the hang of it. Here are three general ways to go about it.
1. Write it down. Planning a budget using your favourite finance app or merely jotting it down on paper, gives you a nice tactile connection to the numbers. You can do it anywhere and anytime. Just remember to have a calculator nearby, so you aren’t doing the math in your head.
2. Use a spreadsheet. This method is perhaps the most popular way. You just set up your categories and plug them into your spreadsheet. The more often you budget, the more you can fine-tune the process. Best of all, the computer does the math for you.
3. Get an app. We live in the age of computers, so there is an app for it, of course. Many of the apps are free, while some cost a few pounds. They allow you the convenience of putting everything on your phone or computer. Check out Mint, You Need a Budget, Wally, and Acorns. Tycoon is a budgeting app designed especially for freelancers.
How to make a budget
The general idea behind a budget is simple enough. Your income for a set period is listed on one side of a ledger. Your expenses for that duration are listed on the other side of the ledger.
People usually write up budgets for a week, a month, three months or a year. The idea is that at the end of the period you have made (you hope) more money than you have paid out. If that is not the case, then you may need to make more money, spend less or go into debt.
On the income side, you will want to write down all sources of income from your job, interest and other sources, if any. With an uneven income–because you are a freelancer, an independent contractor, or work on commission–you may have to estimate. The good news is that the more you do this, the better you will be.
On the cost side, you then list all of your expenses. These can be divided into expenses that are pretty much the same each month, such as:
