As soon as the jars were filled our budget drastically changed. What is the saying? Want to see God laugh, tell him your plans? Hubby received an offer that allows us to manifest a major lifestyle change. He will be self-employed, have greater flexibility and time with our family. So, how on earth does one budget with the variable income of self-employment?
After some research, the best way for us to budget a variable income is to set a realistic budget based on the known income and a reasonable expectation for the variable income. Then build in safe guards, re-evaluation periods and a plan for windfalls.
1. Safe Guards: Determine an amount we are comfortable using from our savings to maintain our budget for the first three months.
- As checks come in, pay back savings first.
- Keep reserves in the account to float future months.
- Remember every day that his pay will be irregular. Don’t stress. Breathe and plan.
2. Re-evaluation Period: Check in at the end of the first, second, and third month.
- Assess how realistic the budget has been and reallocate any money left over.
- Discuss short term savings (upcoming expenses, desired purchases, etc.). Build these items into the budget and windfall plan.
- After the first 3 months, switch to quarterly check-ins.
3. Windfalls: Any amount over the budget x 4 months should be distributed according to our “windfall plan”.
- 50% to debt repayment (we took on low-interest debt for the home purchase and remodel).
- 25% to the short term saving categories (vacation,snowblower, furniture).
- 25% to the cash jars for a bit of float.
This will be interesting to watch develop. I have a feeling the hardest part will be the psychological test of not knowing when the next check will come in, how much we will bring in a year, etc. That said, there is no great reward without risk. There is the real chance that our family will have more time together, more adventures and bring in the same amount (or more!) of money a year.
Talk back, are you self-employed or thinking about becoming? Do you budget? What is the hardest part of being self-employed? What do you wish someone had told you?