How I maintain a family budget on irregular income

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How I maintain a family budget on irregular income

For the last five years, I’ve made a living as a creator. I act, write, teach and produce and it pays my bills and it’s a dream come true. It took me a decade of working to get here to get here and I’m really happy I stuck it out. The majority of my income is from union acting work where taxes are taken out for me and employers pay into my pension and health fund (thank you SAG – AFTRA). The rest of my income is for independent contractor work. None of my pay is consistent or dependable (much like my first boyfriend). And I never know when the next job is coming.

My husband is also a creative freelancer and, contrary to what many people think, it works great to have both of us doing what we want to do and getting to be home for our kids - even if that means that our income does not arrive in the same increments on the 1st and the 15th of every month.

It does take some adjusting to not panic on an irregular income. Occasionally, we have to remind one another to have faith. We’ve survived for years now as a freelance family and we’ve learned to embrace it.

There are many useful articles from experts online about taxes, savings, and retirement for freelancers. You should read every one of them when you are procrastinating from doing your work. In the meantime, I can tell you what has worked for my family.

Here are my tips on how to survive your freelance pay schedule (which is no schedule at all) and maintain a family budget on irregular income.

1. You have to think of yourself as a business because you ARE a business.

You are your own boss, your own billing department, and your own payroll supervisor. Stay on top of your paperwork. Be disciplined in your deadlines. Be organized with your invoices (there are good templates online) and get them out on time all the time. Pay attention to when you are paid and how much you are paid. If a company is late with a check, get on it immediately. Getting that check may be the difference in paying your credit card bill on time or a week late.

I just want to be creative, but I have learned that the business side of my creative business is just as important if I want to make a living doing this. I try to think of it as a challenge. I enjoy learning about how my business works and having the power to make it happen.

2. Know how much money you need to bring home per year.

Add up all your monthly bills (rent/mortgage, electricity, groceries, phone, comic book addiction, etc.) for the last twelve months (or at least get a good average, lazy). Add in bills you pay every quarter or once a year (union dues, health insurance premiums and deductibles, minimum taxes if you’re an LLC or Corporation, etc.). Now add an extra thirty percent (see number 4) for taxes. This is your ballpark figure of what your income needs to be for this year. Write that number down. Put it next to your computer. That’s your goal. Sure, I know, you’re not motivated by money, but having a financial goal does not negate the purpose of your work. Having a financial goal makes the work sustainable.

3. Know how much money you need to survive monthly.

Divide your yearly income goal by 12. Write that number down and keep it next to your computer. That’s your monthly goal. You have to have at least that amount each month to pay all your bills. A monthly surplus is not a surplus, it’s the down payment on the next month. So if you have $500 left after paying all your bills and putting money aside for taxes and future larger bills in February, then you have $500 to start March.

4. Find an accountant who specializes in freelance work.

Ask that accountant how to pay taxes if you’re considered self-employed (that’s usually going to be a quarterly estimated tax). Ask if you will owe self-employment tax (yes, it’s a thing – ugh). Ask if you need to form an LLC or incorporate (you probably don’t have to do either one until you make some serious money but I’m not an accountant so stop asking me!). Ask that accountant how much money you should be putting aside for taxes (anywhere between 20 to 40% depending on how much money you will make, your write offs, and taxes in your state). But it is ALWAYS better to overestimate that percentage than to come up short.

I don’t know any freelancer who hasn’t been screwed at least once on taxes, usually because they owed more than they thought they would. Write offs are a grey and rumor filled space. (Many actors believe that they can write off clothes shopping, which sadly is not true.)The tax code is incredibly complicated and changes every year. You need expert help on what to do with your money so that you can concentrate on making it.

Even if you are considered an employee (vs. an independent contractor), do not assume that you are having the correct amount taken out of your pay for taxes. One year I had a payroll company take a small percentage out on smaller checks and a larger percentage out on larger checks. Well, I get a lot of small checks and when those added up I was mega screwed (that’s an official IRS term) come tax time. My accountant taught me to fill in number 6 on my W4s. "Additional amount, if any, you want withheld from each paycheck." I write in 23% (because that’s what my accountant told me to do and I follow instructions). Since doing that, I have received a tax refund versus a bill.

5. You’ll have good years and less good years.

No year is bad when you are making a living doing what you love. Don’t buy big in the good years and don’t panic in the less good years. Specifically, don’t set your standard of living higher in the good years and then not be able to keep up in the bad. Maybe this year you can afford a $500 monthly car lease, but you might be kicking yourself when you have to pay that next year.

6. Keep two savings accounts.

Have one savings account attached to your checking. Designate it as the tax and big bill (quarterly insurance premium, yearly property tax, etc) account. Money should be moved into this account with every check you deposit into your checking.

Have another savings account at a separate bank and feed money directly into it. I have designated one of my jobs as my savings job. All the money I make (it’s not a lot but it adds up) from that specific job feeds directly into our savings account. I don’t keep a debit card for that account and it’s not connected to our checking. So if I want to withdraw from our savings, I have to drive to the bank between 9 and 5 on a weekday. I have to get out of my car and go inside to the teller and ask for money. Can you imagine?! Make it inconvenient to take money out of your savings account.

7. Use a separate account for all of your business expenses.

Open a business account and only use that bank card, credit card and checking account for outgoing expenses. It makes it much easier to keep your business and personal expenses separate and much easier to find your write offs during tax time.

8. Save for big purchases.

Even if you’re having a great year, instead of going on a spending spree, set a goal and put money aside specifically for that purchase. When you are working on a freelance budget, you can’t afford to buy things on a whim.

9. Be brave. Follow your heart. Take a leap of faith.

Don’t let your fears determine the course of your life. What if I don’t make enough money? What if I let go of this day job and then I need it? What if I fail? Well… what if I have to live knowing that I never even tried? That’s the scariest thing to me. We have to try to do what we love don’t we?

As Ray Bradbury (a freelancer all his life - even before freelancing was a thing) said, "If we listened to our intellect we'd never have a love affair. We'd never have a friendship. We'd never go in business because we'd be cynical: ‘It's gonna go wrong.’ Or ‘She's going to hurt me.’ Or, ‘I've had a couple of bad love affairs, so therefore . . .’ Well, that's nonsense. You're going to miss life. You've got to jump off the cliff all the time and build your wings on the way down."

Don’t miss life. But, also, get an accountant.

Photo credit: liz west