One of the most rewarding aspects of working on BudgetSketch has been the opportunity to share ideas with our users. We also get a lot of questions about personal finance and more. One of the more common questions is essentially, “How can I use BudgetSketch if I’m paid on an irregular schedule?” Admittedly, BudgetSketch seems tailored for regular incomes but we think it is well suited for self-employed users, those whose salaries are commission based, or anyone whose income varies significantly from month to month.
The key to any budget is to be thorough no matter what your pay schedule looks like. While we think BudgetSketch provides an excellent means of seeing all your monthly obligations in one simple view, you can use anything from a sheet of paper to a spreadsheet to list all your required spending for the month. To be extra thorough you should add the appropriate percentage of bills you pay bi-monthly and quarterly.
What you should have then is a minimum income you will need to earn every month from your various sources of income. If you are self-employed, then you should add about 30% to this to cover your tax obligation. For example, if your monthly obligations are $4,000 then you will need to earn about $5,200 ($4,000 X 30% = $1,200) in order to meet all your obligation and pay your taxes. Either way consider this total to be your monthly sales goal that you do not want to miss unless you’ve got a decent sized emergency fund built up in your business account.
This brings me to my next point. You should absolutely maintain a business checking account separate from your personal account. This will vastly simplify your business and personal tax filing each year.
You can use your business account to pay for legitimate business expenses and of course to pay yourself a regular income. Easy right? What could possibly go wrong? You know how much you need to earn each month. You’ve got a business bank account that you’re pouring your income into on an irregular basis. You’re making regular payments to your personal account from that business account. Oh wait, what if you don’t make enough money one month or two to meet your obligations?
Well, if you find that your missed your income goal one month then you’ll be showing a negative cash flow in your business account but unless you’re just starting out you should have accumulated a surplus in your business account over the months. Many irregular earners feast during the good months and starve during the lean months. To avoid the latter you should avoid the temptation to spend each month all the income you receive for that month. You must limit your payments to your personal account to your financial plan (AKA “your budget”).
If you’re just starting out or are preparing to, then we encourage you to save up, if possible, so that you can offset any start-up costs and deal with any initial short-falls as you’re ramping up your business. If you’ve been at this for a whole and if you are unable to accumulate a growing surplus in your business account then you have a bigger problem than budgeting can solve. You have a career problem.
You typically want to run when you hear a sentence like the one I’m about to write but… Take our word for it. We, the creators of BudgetSketch, are irregular income earners and we adopted this method of budgeting over a year of trial and error and it hasn’t failed us yet but as always we’d love to hear what works for you.
