Variable income budgeting

How spectacular does it feel to NOT have anyone bossing over you? Or to charge your employer exactly what you are worth every single time?

self employed

Welcome to the freelancers’ world!

….Which also means you’ll be under fluctuating paycheck, variable income, irregular money flow yada yada yada.

You get the gist. Welcome to the life of a self-employed, again!

freelancer variable income woes

So. How do you save money as a freelancer? How can you budget when there can be any emergency at any moment?

Here’s how:

How to make a budget (before)

This is what you need to do before-hand:

  • Go through all your expenses from the past 6 months (minimum) and 12 months (maximum)

Go through your bank statements and while that can be heart-breaking at times, it can really open your eyes on where your money is actually going.

needs and wants
  • Now see all the necessary expenses - food, clothing and shelter

Include your monthly installments (if any), (’cause the bank people wont let you live your life if you don’t, so its necessary).

You probably don’t need to include transportation costs, ’cause you work at home, but if you do, add ’em too.

Now find the monthly average of your necessary expenses.

This is known as your bare-bones budget.

how to make a budget

This means if you are in the worst of the holes, you absolutely cannot afford to spend a single penny more than your bare-bones budget.

Now, of course, you cannot stop living life as if you are gonna get pneumonia tomorrow, so make sure to give yourself some slack. You know, for yourself! Got a knack for wine? Soak ’em up!

Now, you need to go through the following steps very carefully:

1. Create a zero based budget

No. Zero based budget (or zero sum budget as others call it) DOES NOT mean your bank balance comes back to zero every single month.

zero sum budget

All that it means is that after the month ends, you end up spending all that you were supposed to spend.

Please regard the word “supposed” carefully.

If your budget had room for eating out thrice a month, and you dined out for a couple of times more, (and consequently have to cut on other categories), that means you were NOT SUPPOSED to overspend.

how to save money

Yeah, I think we are clear on what the word “supposed” actually means.

Let me give you an example. I earn CAD 3000 as an average per month. As per my “supposed to spend” budget, I can safely spend CAD 1800. This means after paying for the necessities, installments and me-time, I have zero dollars to spend anymore.

“But what about the remaining CAD 1200?”

I save it. Period.

Save like you've never saved before

I am a freelancer. My income is unpredictable. Therefore, I must save every time I have surplus amount left with me.

variable income woes

Part of it goes towards my emergency fund. Another part of it goes my retirement savings. And if I have any, then I push that towards my student loans.

This is what zero-sum budget means.

Have multiple savings accounts

As a freelancer, it is anyways recommended that you have a separate bank for your personal finances, and one for your freelancing business. This also comes in handy when you are saving money using the zero based budget method.

multiple savings bank accounts

It is however, not recommended to automate the monthly deductions every month cycle. You are a freelancer, and you never know when your client pays you late and other bad things happen. It’s stupid to have overdraft fees in that case.

This is what you do :

  • You manually withdraw and deposit cash from your branch.

But where to? To another savings bank account which acts as your emergency fund. Or to your monthly installments, peeps.

  • You, also, withdraw your "supposed to spend" budget and KEEP IT WITH YOU IN CASH.
zero based budget planning

Very important thing to note. Spending cash not only lets you to be you be mindful of how much you spend, but it also stops you from piling on (additional) credit card debt.

Advantages of zero based budgets

  • Zero sum budgets are very effecient because it allows you to account for every single cent.
  • If you are paying off your loans or mortgages, a zero sum budget is the best way to pay it quick.
  • You learn to be very disciplined, something which everyone should be, but freelancers, even more.
  • You learn to find frugal ways to enjoy life wihout breaking your bank.

Beware, though...

You will not be able to stick very closely to your budget, at first try, mind you. I could, and I know how hard it is.

Building up extreme discipline takes practice and patience to an extreme level. Trust me, there were times I really felt like ordering expensive (but delicious) Indian cuisine just because I missed my boyfriend (he cooks it sooooo goood).

zero based bugdeting 2

But then, you see, I have a budget.

Oopsie doopsie.

So I tweaked this method

Whenever I need to buy something, I check my “safe to spend” budget and see if I can really afford that.

And then, of course, there are useless, harmful expenses, like cigarettes. I am on the road to quitting this addiction, so you see, cigarettes are a big no no.

So this is what I do:

I always keep my Apple Pay wallet balance at zero.

And if I have to buy essential items ike milk and groceries, I first add the exact amount into the digital wallet, and then proceed to pay the shopkeeper.

save money

Why I do this:

I noticed quiet recently that the mere presence of some money in my digital wallet made me feel like I can afford something either within, or without that amount.

So if I am tempted to buy something useless (cue: the cigarettes), I literally check my purse (which I know has just coins and my id) and even though I am aware of the contents of my purse, now that I’ve seen it, it just sorta cements my broke-ness.

Same thing with my mobile wallet.

It takes a minute or two longer than the rest to pay at the groceries, but it deters me from going overboard.

And trust me when I say this: I have over boarding-impulsive issues.

It worked!

Yup. It worked. I was being very hard on my self, yes, and there were times I reeaaaallly to just spend, but you know what?

This is my third attempt to getting this variable income budgeting right, and I’m pretty stoked up to tell you guys that I just spent CAD 10 more than my prescribed bare bones budget.

Tell me how did you save money with a variable income in the comments below!

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