Tuesday, January 27, 2009

Budgeting with the Variable Income

image No, this is not a post about how to budget for the self-employed. This is a post asking how to budget for the self-employed.

Given my baby goals, budgeting has taken on a greater importance. I have a budget, but it’s sort of a bare minimum budget, like: this is the do or die budget. These are my bills, and this is where the money goes first. The rest gets saved.

But I need to do it differently. It’s all very confusing. Everything is based on Ifs. If X number of students join, and if X number of students quit, and if I sell X number of stories, and if I write X number of stories, then my budget will be Y.

But, good lord, that’s a whole lot of ifs, and it’s all changeable at any given time.

I generally assume I won’t get the money until it’s in my hands. You never know. It could take forever, and I’ve even had one year where three students happened to quit/move away with $2K of past due money they never ponied up. (And 2K is not a drop in this bucket, let me tell you.) I’ve lived through corporate mergers, where half my studio moved to San Francisco, LOL.

image Writing seems to be the most steady at the moment. I’m grateful. I just need to write faster and expand into new markets. It’s difficult, because a large part of them have more potential in the long run, but often involve a paycut, or money spread over a long, long time. I generally need the money, so this is a difficult transition for me.

So anyway, my point is, with all this flexible income, I’m getting frustrated with building my budget. I feel like coming up with Plan A, Plan B, Plan C, Plan D, and Plan E, all based on various Ifs.

I don’t know. Is that the way to do it?

Several of you are freelancers, or own your own business, etc. How do you do it?

32 bonus scribbles:

Anonymous,  1/27/2009 07:04:00 PM  

Figure out how much you're confortable with saying you'll bring in for sure (minus one student minimum because of the trickle-down theory with our crappy economy) and base your budget on that.

Now keep in mind, I could be speaking out of my arse because I work for the man. *grumble* However, I've been living below my means for years, and BOY, has it paid off. ;-)

lainey bancroft 1/27/2009 07:24:00 PM  

Aw, man, you're poking the sorest tooth in my mouth!

Seriously. We're about to embark on a 'free' cruise we can't afford! Can't afford the time off...

I have spent the last week (2? 3?) twisting in hell over this, but after 20+ years of self employement, I do have an 'it'll work out later' mentality.

I will go. I will enjoy! When I get home, I will work my ass off and/or do without, and that is...a budget, Lainey style.

(sorry, probably not very helpful. :-( )

Heather Harper 1/27/2009 08:13:00 PM  

Keep budgeting as you have. You'll just end up saving more when you make more. It's how we are going to do it if/when hubs becomes self-employed again.

Curious. How long does it take you to write a novella draft?

spyscribbler 1/27/2009 08:26:00 PM  

Marcia, that sounds like a smart idea. I try to keep a buffer, definitely! :-) In fact, I usually don't factor in my writing income at all, but this year I have. I'm not sure if that's good or not!

spyscribbler 1/27/2009 08:27:00 PM  

"I will work my ass off and/or do without, and that is...a budget, Lainey style."

Aw, Lainey! I confess that's often the method I've employed! It works, but it's full of stress, LOL!

spyscribbler 1/27/2009 08:56:00 PM  

This is true, Heather. I was wondering, though, if I'm mentally limiting myself, you know? By seeing the "minimum" all the time?

Oh sheesh. My novellas run between 40K and 52K. They take me anywhere between 10 days (emergency, 12 hours a day) and 3 months (major distraction and procrastination going on). I don't do drafts. I write and fix, write and fix, edit as I go, and when I'm done, I'm done. I don't know how to write any other way. Seriously clueless about drafts, LOL.

I guess I average 1-2 months, depending on so many factors, including how much coffee I'm drinking, LOL.

McKoala 1/27/2009 09:16:00 PM  

Don't spend anything, LOL.

I'm a freelance writer. DH covers the mortgage, I cover the bills for home and business. I always keep a generous minimum in my account - enough to pay what my business would need to pay if I were to have six weeks of no income, plus a bit more because I'm paranoid. If I dip under that buffer I get very uncomfortable.

Robin 1/27/2009 09:38:00 PM  

If you look at your income over the past 5 years, is there an average or a trend? I budget according to my average, but that's assuming things will remain relatively stable.

McKoala, are you real or are you Chris? Fess up, you little bear, you.

Edie 1/27/2009 10:00:00 PM  

No advice. Just good luck on this.

LaDonna 1/27/2009 10:09:00 PM  

Hey Spy, I loved Edie's reply. Sorry, but I can't offer any advice either. We're self-employed and our ship lurches one way or another every week. I've never been a real planner, but always know things will work out. So far, so good.

If you're a worrier, this is Not the plan for you! lol.

spyscribbler 1/27/2009 10:21:00 PM  

"Don't spend anything, LOL."

Seriously, McKoala! That's how I plan, LOL! I have my budget, and I rarely spend anything unless I get extra income, and then I only allow myself about half the extra income.

That's excellent advice!

spyscribbler 1/27/2009 10:23:00 PM  

Robin, I wouldn't like the trend, LOL, not with the way the economy has gone!

I generally average the last four or five months, and then half that in the summer.

I'm looking at all sorts of ways to increase my income, so I can put the baby in my budget. What do I do with that? Create a "goal" budget?

spyscribbler 1/27/2009 10:24:00 PM  

LaDonna, that's a great way to explain it, for sure! LOL! I guess things are pretty steady, month-wise, but I never know who is going to pay late, when. So... you know.

You're totally right. Somehow it works out!

Eric Mayer,  1/27/2009 11:06:00 PM  

Mary and I have been freelancing for almost 15 years. Depending on work flow, and the sizes of projects (for example a long project that only pays when it's finished) we can, and have, gone four or five months without any income. You have to find some way to get enough money in the bank to get through those times. It took us a few years. Until you can manage, it's hell. You need to budget for what you can reasonably expect to make over the course of a year or more, not what you earned in the last good month. Given the way things are, you're best off figuring on the absolute least you can spend and still live. It's tough but being your own boss is the best luxury there is.

spyscribbler 1/28/2009 12:34:00 AM  

Eric, I agree! I've had my moments where I've imagined getting a day job, but I think I'm spoilt. There is just no beating it, and, you know, life is just too short.

Getting six months ahead is number three on the list. :-) Well, come to think of it, it's number two now. Woo-hoo!

Mark Terry 1/28/2009 09:17:00 AM  

Primarily I set a number that I view as my "average minimum monthly." Do I hit it? On average, yes. In fact, ON AVERAGE, I smash it. But some months I go over, sometimes way over, but sometimes way, way under.

In short, my math goes something like this. I need to average $4000 a month in order to make $48,000 a year.

However, my goal or expected income might actually be $5000 a month or more, ie., $60,000 or $72,000 or whatever.

I guess it's a way of keeping my expectations, and thus expenses, under control.

spyscribbler 1/28/2009 09:27:00 AM  

Mark, I really like the idea of smashing my average minimum monthly, LOL! I was trying to figure out how to plan for the two. I think I need to do a minimum, a baby minimum, and a goal.

Kath Calarco 1/28/2009 09:50:00 AM  

Our household is based on self-employed income. Luckily, the big bread winnner is a sole-practiting attorney, and there are always people in need of a lawyer, as much as the majority hates them. That said, much of the practice these days is supported through bankruptcy filing.

The only advice I can come up with is to always make sure you have enough set aside to keep a roof over head and food on the table.

spyscribbler 1/28/2009 10:15:00 AM  

I don't hate lawyers, Kath. Doctors, on the other hand... LOL!

Good idea, LOL! And to pay the bills, and the taxes... so I don't end up visiting your husband for bankruptcy! :-)

Erica Orloff 1/28/2009 10:30:00 AM  

Hi Spy:
I manage--and it's totally imperfect.

I know what I need to make each week and each month, and if a month is falling short, I hustle.

For six years, I've made the same income, give or take ten grand. Somehow, it works out. But I can't say I have a cushion anymore.


Aimless Writer 1/28/2009 11:34:00 AM  

I wish my writing would make money!
Money seems to get tighter and tighter and just when I see that light at the end of the tunnel...BAM! Something jumps out and gets ya!

Pink Ink 1/28/2009 11:36:00 AM  

Spy, the fact you're even thinking budget, you're miles ahead of me :-).

I thought of you today when I posted about Janet Evanovich.

Wendy Pinkston Cebula 1/28/2009 01:07:00 PM  

How about a little phone sex gig on the side?

I'm kidding, of course, but it probably IS good money!

spyscribbler 1/28/2009 01:17:00 PM  

Erica, the ability to hustle is one of the reasons I like writing. Teaching is time-based, so you can't hustle, particularly because students tend to call in either June or September, and once in awhile in January. With writing, I can write faster!

I really like that I'm in control of the power to make more money with my writing output. That would almost be a tie with how much I love writing, LOL.

spyscribbler 1/28/2009 01:17:00 PM  

Aimless, those somethings drive me CRAZY! Everything is finally all in order, and then it's SO frustrating!

spyscribbler 1/28/2009 01:18:00 PM  

Jewel, I loved your post! I've been thinking budget a lot. Ever since I started thinking health insurance!

spyscribbler 1/28/2009 01:32:00 PM  

Hah, Wendy! That's hilarious! You know, with Glenn being gone, that would be the 'any' I'm getting!

Sarah Laurenson 1/28/2009 09:30:00 PM  

Can you break down the leftover by percentages? Like 50% to savings for this, and 20% to savings for that, and...

spyscribbler 1/29/2009 12:59:00 AM  

Geeze, Sarah, that's really smart. I never thought of that! LOL! There are so many basic things I've never thought about. I've spent too much of my time making music or writing stories, LOL. This budgeting stuff is actually fun!

Barbara Martin 1/30/2009 02:26:00 AM  

A financial adviser wrote an article in one of the Toronto newspapers about income:

60% goes to household, food, hydro, rent/mortgage, insurance, etc.;
10% goes to a retirement plan;
10% goes to short-term savings;
10% goes to long-term savings;
10% is fun or personal money, so you don't go crazy having to do without.

Dal Jeanis 1/30/2009 01:09:00 PM  

L Ron Hubbard and Benjamin Franklin had similar suggestions -

BF's was something like "If you know how to spend less than you get, you have the philosopher’s stone."

LRH's was something like "Make all the money you can and spend less than that."

My suggestion is, take your experience that tells you you will average earning X each month. Set your expenses at 80 percent of X, and your savings at 20%. If you tithe regularly, then estimate your X AFTER tithing.

When you earn more than X (after tithing), put the extra into savings along with the 20 percent. When you earn less than 80% of X, or when you have emergency expenses, first try to economize, then pull from savings if you have to.

Once you have three months' expenses saved up in cash, then you can decide whether to be less conservative about your savings, or (better advice) start building longer-term wealth.

Put the second three months' expenses into "quick assets" that can be turned into cash easily on need. During this phase, you can also use extra income to pay off small-balance debts to free up your cash flow.

The third three months go into long-term assets (paying down mortgage, paying off car loans or whatever).

Don't buy depreciating assets (cars, boats, washers etc) except on absolute necessity. DO spend what's necessary to maintain what you have in good repair.

That's general advice on how to budget for irregular income.