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How to Budget When You Have an Irregular Income

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Going freelance and working for yourself is both exciting and challenging. It’s easier than ever to set up a business and for that reason, many people are starting to go it alone.

One big challenge that us self-employed folks face, especially in the initial months of starting up, is managing that all-important budget

You’re no longer getting a steady paycheque each month and payments from clients can be intermittent, to say the least.

All this can leave you with an overwhelming feeling of anxiety as you watch your household bills coming in.

You need to figure out a way to manage your personal and your business finances side by side.

Here are some simple steps you can take to make things move a lot smoother and help you get over those times when not enough money is coming in

1. Focus on Your Personal Finances

This might seem a simple thing but when we become masters of our own destinies it becomes even more important. 

It’s helpful to bring a little mindfulness into your budgeting and really get to understand exactly what you payout and what you need to keep yourself ticking over.

Start by making a list of your outgoings such as rent or mortgage, food, utilities, insurance, council tax and your broadband and phone. 

Prioritising your bills is key in setting a baseline from which you are able to operate financially.

Knowing exactly when these bills go out is just as important as how much you are paying. Because if your income is irregular, it may make sense to ensure you have these outgoings spread out over the month to give yourself more chance of meeting them.

2. Build a Buffer

It’s important to start putting money aside early on in your freelancing career. It provides a buffer if finances do become a little sticky at some point. 

This can be challenging, of course, especially when you are first setting up.

Ideally, have a separate bank account that you can put the money into and only use it when there is an emergency. 

You’ll also want to save for time off. Don’t forget, you’re not getting holiday pay any more and, if you want that trip to the South of France this year, you’re going to have to save for it.

3. Don’t Get Into Debt

It sounds obvious, but when you are in a sticky financial situation you may feel backed into a corner.

Debts build up and compound each other. 

So it’s a good idea not to take on any extra commitments, at least until your income becomes more settled. 

Try to avoid any short term solutions such as borrowing to build your business or cover any urgent bills. 

You’ll quickly get into a situation of robbing Peter to pay Paul.

Always give yourself a cooling-off period before you commit to any financial arrangement of this kind. 

Can you really afford repayments? What happens if your income suddenly drops?

4. Don’t Overspend

I know this sounds like an obvious point to make. And I’m not suggesting you live like a monk.

But you do need to watch what you spend when you have an irregular income.

Impulse buying can give you an immediate buzz until you realise it’s left you short for the month and the client you had expected to come through with a payment has mysteriously disappeared.

5. Build Up Your Business Income

Another way to make your budget run more smoothly is to build your business income. 

Naturally, this will depend on what sort of sector you work in. 

For some, that will mean building up regular customers who you can depend on for business either every month or at least a couple of times a year.

That will make your income a lot more predictable.

Getting this type of repeat business depends on always providing a good service and delivering the goods for your client. 

You can’t afford to take your foot off the pedal. 

Good service also goes a long way to cementing your reputation in your local field.

If building up work with regular customers is not an option for you then you’ll need to simply look at selling more of your product or services.

I would advice you to put some of your budget aside (or at least some personal effort) to market yourself online – that includes having your own website and being engaged on social media.

You could also like to look at your skills set and whether you can diversify into new areas to boost your freelancing income. 

You might be surprised what opportunities there are nowadays when you put yourself out there.

6. Agree Payment Terms with Clients

Once you become self-employed, you’ll need to focus not only on what you offer clients but how you get them to pay on time.

It’s important to set timelines before you start to deal with a new customer. There’s a world of difference waiting for a payment for 60 days than if the account is settled in a couple of weeks.

Our advice is to set your payment terms out clearly and concisely when you quote for work and deliver that all-important invoice. That way you are both clear on what is expected and it should ensure you keep your cash flow in motion and suffer a stall.

If you feel like your invoicing system needs a revamp, then read my post on How to Set Up the Perfect Invoicing System.

7. Anticipate Peaks and Troughs

Peaks and troughs can happen at any time. Some are seasonal, others are sector-specific. 

For example, your customers may be less willing to invest or hire your services around Christmas or during the hotter summer months when they are planning a holiday. 

Companies might start tightening their belts once they reach January and before the new tax year starts.

It’s important to identify the high times and low times in your business so that you can ensure you have enough money to get you through. 

Troughs can actually be a great time to invest in new services and diversify your offering.

8. Finding Other Sources of Income 

My final tip, that many people are more commonly adopting nowadays, is to have more than one income source. 

Additional streams mean you have money coming in even if your main freelance activity slows down a little. 

You may want to work part-time for someone else, for example. 

Freelancing can be quite an isolating business so doing a few hours here and there not only gets you out and about but gives you a little extra regular income.

There are a lot of opportunities online that may not give you the big paydays your freelance career does but keep you ticking over, everything from user testing for websites to operating as a virtual assistant.

Now the world is your oyster, you can also look at building new skills that compliment your existing ones and allow you to offer more diverse services to your customers. It’s important to think out of the box and explore new areas whenever you can. 

Wrapping Up

The most important thing to remember if you are struggling to budget with an irregular income is that you are not alone. The problem you are facing is actually something millions of people who work for themselves suffer all around the world.

It won’t get better unless you face up to your problem and do something about it – take control of it before it takes control of you.

Go Self-Employed | The UK content hub for self-employed folks, freelancers and solopreneurs who want to get a grip on their finances and plan for a better financial future.

Anita Forrest
About Anita Forrest

Anita is a Chartered Accountant with over a decade of experience taking self-employed business owners from financially confused to business savvy. She is the creator of the ‘Go Self Employed’ website, which is her corner on the internet where she makes self-employment less terrifying.