So, you've finally made the leap and decided to become self-employed and build your own business...be your own boss. Here is the reality that many people don't talk about: owning your own business can be really hard. You do not get to rely on a steady income or the prize "guaranteed paycheck". Yes, you can certainly earn way more working for yourself; but in order to be successful, you have to be able to navigate the realities of self-employment and not having that paycheck guaranteed.
Here's how to start and manage a budget when your paychecks are inconsistent:
Write Down Your Monthly Expenses and Make a Budget
You may not know what your paycheck will look like next month, or even the month after that, but you do need to know what your monthly living expenses are.
Here is a quick tip for a monthly financial goal while you are self-employed and just starting out:
1. Know Your Basic Expenses: rent/mortgage, car payment, insurances, utilities, food
2. Set Your Initial Target Monthly Income As Your Basic Monthly Expenses
You're The Boss, So Write Yourself Your Own Paycheck
When you close a deal, or sell a lot of products or services, try not to overspend that money; because you will find you can spend it fast, especially when you are self-employed. This is particularly true if you are bringing in way more than you did previously. You can either put that money directly into the business account (reinvest in the business) and just don't touch it. You can also write a literal paycheck from your business account into a separate business checking or savings account, make a withdrawal, or complete an automatic transfer. This way when times get slow, you can still sustain the business and your self-employment.
You need to create an emergency or rainy day fund, that you only tap into for emergencies. Whereas your personal business account may be withdrawn from more regularly.
Building a large emergency cash reserve can be tough, especially when you are just starting out. You need to build this cushion when you have a lot of money coming in and try to spend it as slowly as possible when you aren't bringing in as much.
Set Long Term Goals and Reward Yourself
Make savings and retirement contributions and any other goal-focused contributions – such as saving for a home down payment, travel and more – as a part of your self-employment financial plan. Remember that when you're self-employed there are various account contributions such as IRAs that can help lower your income tax come tax season.
Reward yourself when you score a huge new contract or deal, land a major gig, or sell a certain amount of products. Start with small goals, such as your first contract, or first new client or product, then move to a larger dollar amount and reward yourself with things along they way, such as items you have your eye on, vacations and more. Just be realistic and make sure you can realistically afford them in the long run, even if it slows down after you reach a peak.
Enjoy this self-employment time. Being self-employed can be scary, and can take time to see success, but you can do it if you are disciplined and make good choices, there is risk but there can also be incredible reward.