How to Create a Budget for a Self-Employed Income

Budgeting allows you to determine how much income is necessary for meeting personal expenses, paying off debt and funding other goals. A budget also serves as a motivational tool that may inspire higher-value clients or reduced expenses and lead to higher earning potential.

Make an initial estimation of all of your fixed expenses, such as rent/mortgage payments and utility bills, cell phone expenses and cell phone fees, cell phone service contracts. Next, identify any variable expenses by reviewing past credit card and bank statements.

Identify Your Goals

As a self-employed individual, your income can fluctuate each month and so creating a budget that accounts for this irregular income stream is essential. Start by listing all your monthly expenses and categorizing them as fixed and variable expenses - fixed expenses include rent, utilities, transportation costs and debt repayment while variable expenses such as gym membership fees or dining out can include leisure spending like dining out.

Your savings, emergency and retirement accounts should have their own budget to minimize financial stress during slow months when client payments vary widely. In order to make tracking expenses and calculating quarterly taxes easier for you. A successful budget requires having access to tools for tracking expenses in real-time as well as staying on track, so this money management tip can help alleviate stress when running a self-employment business.

Calculate Your Expenses

An effective budget will help reduce financial stress during the ups and downs of self-employment. Start by calculating how much income is necessary to cover personal expenses each month (after subtracting deductions such as those for retirement savings or health and life insurance policies), then review past bank and credit card transactions or use an app such as You Need a Budget to monitor spending habits.

Once you have an accurate picture of your spending, start breaking it down into categories: necessities vs wants. For instance, gas and groceries fall under necessities while music subscriptions and gym memberships fall into wants. Breaking your expenses down further into short-term and long-term expenses may help provide insight into how quickly things add up so that more informed decisions can be made about what needs to go or stay.

Create a Budget

No matter the source of your income - self-employed, seasonal or commission-based - creating a budget is key for managing money effectively. The first step should be identifying how much income comes in each month (typically your net income minus taxes) so as to set an appropriate monthly spending limit and create a realistic savings goal.

After you have calculated your expenses, start by identifying fixed expenses: Rent/mortgage payment, cell phone bill, garbage bill and utilities bills are just some examples of fixed expenses that cost the same each month. Next, estimate variable costs like groceries, dining out, gifts and entertainment - credit card statements can help with this estimate!

Once you have an understanding of all of your expenses, subtract this figure from your net monthly income to determine the minimum amount necessary to bring in each month. Allocate any surplus funds toward needs, savings goals and debt payments before setting aside a portion for taxes each month.

Track Your Spending

If you are self-employed or receive irregular income, budgeting is crucial to managing it wisely. Tracking where your money goes is vital to successfully spending it wisely. A spreadsheet, notebook or an app like You Need A Budget are all useful in tracking where it goes and keeping a record.

One of the best things you can do for yourself is setting aside a monthly cash cushion. If your income increases unexpectedly, put some of that extra money towards savings or debt repayment so you have something to count on during leaner times.

Track your expenses regularly by writing down every purchase you make on a small pad or notebook. Even if you receive regular paychecks, this practice helps to understand where and how much of your money goes toward spending and whether your spending aligns with your goals and values - otherwise it may be time to cut back on unnecessary spending.

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