Finances on an Irregular Income
How do you budget and live when you don’t know for sure when (or if) the money is coming?
If you’re like most creatives, your income fluctuates. It can depend on season, convention/show attendance & sales, how much product you created this month, commissions, contracts…the list goes on and on. Some months will be really good, and then suddenly there’s a month with moths flying out of your empty wallet. You’ve more than likely heard all the tips and lessons about budgeting, but how do you do ANYTHING when your income in not set in stone?
Our Money Situation
For us, it’s a bit of a balancing and juggling act. Is it hard? Hell yes. But we’re making it work. And it really IS work sometimes. My current work is contract based, so it’s dependent on the number of clients and the number of hours of work each one gives me. If I take on additional creative gigs, it’s usually a one-off/one-time income so it’s not something I can plan around. Harrison currently has fluctuating part-time hours at the doggy day camp, and then his art commissions, web sales, and convention sales make up the rest of his income.
Moving to Portland was at least partially a financial choice. We had the resources and ability to spend more for a short time so we could afford the move, and the cost of living here is lower so we’re already seeing an impact on our finances. Are we suddenly flush with cash? No, but it’s already easier to pay the bills and we know that we’ll have enough food in the house. That feels like a pretty big win.
How we do
We have a budget, and most of the time we stick to it pretty religiously. So there are weeks where it is literally “we paid the bills, and we’re eating plain noodles”. It means often saying no to offers to go out with friends if the “out” requires things like paid parking or food/drink minimums. However, if there’s something we REALLY want to do, we plan for it. And set aside a little at a time so we can do it. Or use our fun money – when Harrison used to get tips, the rule was half went to the savings jar, and half could go in his pocket. It was money we hadn’t budgeted anyway, so it was flexible. We use the same philosophy now with the money we’ve been making on eBay selling some of his childhood toys – about half goes to bills, debts, and savings, the other half is for trying new food in our new town.
In addition to our regularly-scheduled but not-consistent-amount income, Harrison has a minor bit of extra income (also fluctuating amounts) coming in from RedBubble, TeePublic, and his Patrons. That money goes straight to costs for the business of his art, and any left over goes back to other bills and debts. Convention income goes first and foremost to cover the cost of the show (including inventory and travel, either to pay the credit card we put it on already, or if we were able to pay with cash/current money, it goes straight into the next show). And then, again, any leftover goes to bills, debts, or bigger-ticket savings piles (like when we knew we had the move coming).
We have a change jar for when we do use cash and get coins back. We look for deals and sales and coupons. I’m starting to stalk Facebook Marketplace and Groupon and Woot when we are looking for specific things. When I know a big expense is coming (like car registration renewal, or a convention hotel stay), I get a little crazy about our budget and will start plotting out money months in advance.
How I budget
“But Aiden,” you ask, “If your income fluctuates, how do you make a budget?”
We use something called the zero-balance budget. Basically, I tally up all our expenses and then subtract that from zero to get the amount of income we need to earn this month. So I start by knowing EXACTLY what our planned expenses are every month. Those expenses are also listed by priority, so if the income comes up short I know I’ve paid things like the roof over our head first (I can always find ways to reduce the food budget, and some of the utilities will work with partial payments if you talk to them about it). If we’re consistently ending up with a negative balance, we keep looking for things we can cut (do we need that subscription right now?) or ways to bump up the income (can Harrison promote his pet portrait commissions at the doggy day camp this month?). If there’s a positive balance, then we can throw it at debt, savings, and a little bit of extra fun.
The Credit-Card-Shaped Elephant in the room
I’ll be honest, we have a fairly large pile of debt. I’d love to stand here and say “just don’t use credit!” but for many that ship has sailed or just isn’t realistic. But I do want to acknowledge that it IS an awful burden, so please do your best to only use credit as absolutely needed and pay it off as fast as possible. Back to us – we have debt, it sucks, so our main priority is throwing extra windfalls at that because the less debt we have the better our life will be. It’s a work in progress, but there IS progress. Through setting aside tiny bits here and there and a few surprise windfalls, we’ve already reduced over $2000 in debt this year. Little things like balancing my (virtual) checkbook by rounding up every spend to the next dollar amount help too – by the end of the month, I have somewhere between 20-40 extra dollars in my bank account that my budget says was already “spent” – that goes directly to a principal only payment on a loan or credit card.
Now in case you’re thinking I’m ALWAYS on top of our budget and we never screw up or spend foolishly or impulsively, I LAUGH IN YOUR FACE.
Despite our best efforts, we still give in to “well, one extra meal out won’t hurt” and “that thing is slightly more a want than a need, but I want it really bad…it’s just a one-time expense” and “it’s only a couple dollars” and even “screw everything, I’m spending what I want this week”. And then, yes, we pay the price with being short somewhere else or not being able to save as much for something more important or that we wanted to do. And the money-juggling starts again. My point is, I’m not perfect, I’m human, and we screw up. The key is to acknowledge it, learn from it, adjust the budget, and move on.
Online tools and apps
Other tips and tricks we use include an awesome little app called Acorns which lets you link your debit card/bank account, some credit cards, and more. It then rounds up your purchases to the next dollar, putting that spare change into an investment account. They also have additional rewards for shopping and options for additional savings help, like a retirement account. I’ve had the account for almost 2 years now, and over the course of that we’ve saved almost $600 without thinking about it. It’s AWESOME. My hope now that our expenses are down is that I’ll be able to turn on the “double my round-ups” function without it affecting our budget, so that little acorn can grow faster.
Another tool I love in NerdWallet, because while it’s basically a financial information website, it is so comprehensive and useful it’s almost fun! NerdWallet can track your spending, your credit score, give you functional advice and things to do to improve your score, lets you compare bank accounts and credit cards, and more.
There are a million financial-help related blogs and sites and apps now, do some googling and find the right ones to help you.
One note about taxes
An important reminder, especially for the self-employed. Don’t forget to set aside your taxes! We have a separate savings account specifically for this. You do NOT want to get to tax time and find out you owe money and haven’t set aside anything. It may be tempting to spend that whole commission fee you just got, but it will only hurt you in the long run. Also, because everything varies by city and state, please do your research and consult professionals as needed – for example, Los Angeles has an extra small biz/self employed tax that you have to specifically apply for exemption from (if you make less than a certain amount from your creative endeavors). If you don’t pre-apply, no matter how little you make, you’ll get hit with a large unexpected tax bill from the city, and it will be a huge hassle to fix the problem. I speak from experience here.
Just to reiterate,I am in no way a tax professional, so regardless, please get help and advice from someone who is.
Some other articles and resources
Dave Ramsey is considered one of the best when it comes to personal finance (in fact, it’s his Snowball method we’re using on our debts). Here’s a post on his site specifically about irregular income budgeting.
The Balance has an article about irregular income here (and also talks about the “envelope system”).
More tips for creatives and their finances from artistmyth.com
A great article from Lifehack.org with some great small baby steps to help see a big difference.
As a creative, how do you handle your finances? What are your tips and tricks for handling irregular income? How do you budget and plan? I want to hear about your irregular income positives and negatives, even if your answer right now involves screaming into the void.