My boyfriend and I have been together for almost 9 years. We’ve mixed finances for several years now. We are both self-employed and have irregular incomes. However, his is much more reliable than mine is. Thankfully, neither of us have much overhead which helps to simplify our budgets in the areas where they mix with our businesses. Still, we aren’t in a position to be able to budget with savings every single month. Here is the basic framework for how we created a budget with irregular income:

We both sat down and looked at what we had made in each month the previous year. We both took our *worst* month. For me, this was roughly 1/3 of what my best month was, so quite low. For my boyfriend, his worst month was only a hundred or so less than his best month. We combined the total of my worst month and his worst month. We use this as our basic income level, and we use this figure as the amount of income that we have on a regular basis, even though some months we do much better. This is not our true number, but for an easy example lets say that amount was $2,000.

We made sure that our monthly bills are less than that basic income level of $2,000. Our bills would look something like this (again fake numbers for an easy example):

Total income: $2,000.

Rent: $700

Student loans: $200

Groceries: $400

Gas: $50

Car insurance: $150

Trash & recycling: $25

Cell service: $100

Internet service: $50

Pet expenses: $75

Business expenses: $200

Total expenses: $1950. $50 left over.

There are two glaring problems with this budget. One is there is no amount allocated for putting in a savings account. The other is we haven’t set aside money for income taxes, which is a really bad idea when you are self-employed. However, we simply don’t have a high enough income on those bad months to meet all of our bills and extras. We only have one vehicle, one cell phone and we don’t have TV service. We have to have internet for our business. So, there isn’t really anywhere to squeeze. We are always working on improving our businesses to increase our income. However, we still are able to make this budget work for us because our good months are so much better than our bad months. Our best months look more like this:

Total income: $3500

Rent: $700

Student loans: $200

Groceries: $400

Gas: $50

Car insurance: $150

Trash & recycling: $25

Cell service: $100

Internet service: $50

Pet expenses: $75

Business expenses: $200

Total: $1950. Remaining: $1150. So we divide that remainder into a general savings and a savings for income taxes. We would probably do about a $300 for general savings, and $850 for income taxes.

As a general rule, you should expect to pay about 1/3 of your income back in income taxes when you are self employed. We try to save enough for that each year. However, we personally have only paid about 15% total so far, it’s always subject to change based on our business income, expenses, write-offs, etc so err on the safe side.

For us, the key to keeping our overall budget in check is to not spend the “extra” money from good months on “extras” or unnecessary purchases. We have to keep in mind that our bad-months budget does not include savings, so when we have a bad month where we can’t contribute to savings or our income taxes savings, we think of our budget as being in the red until we have a better-than-average month where we can put more into savings to get us caught up. Essentially, we have to take the “extra” from good months to make up for the band months. Thankfully, we tend to only have 1-2 really bad months per year and mine are pretty predictable which month of the year it will be, so we see it coming. The only reason why this works is because we have more good months than bad months. It also requires a great deal of self control because it is hard to not waste the money on good months.

Are you self-employed with an irregular income? How you do accommodate for an irregular income or a really tight budget?