Paying Off Debt When You’re Self-Employed
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Being self-employed can have lots of benefits. You set your own hours. You determine when you go on vacation. You’re your own boss.
But, with entrepreneurship come some financial challenges that are different than those experienced by people who work for an employer. One of them is an erratic paycheck.
This makes it challenging to live within your means. If you find yourself trying to pay down debt and stick to a budget, it can be extra tricky.
Our family’s primary income for about 15 years was from a construction business. Our income was different every month.
This made budgeting extremely difficult. For years I read the books that said, allot this percentage for housing, this percentage for food, blah, blah, blah. But when the whole changes every month, so does the % and that doesn’t work well with the phone company or your landlord.
It wasn’t until I read The Total Money Makeover that I learned how to really make a workable budget.
Bryan and I tweaked the recommendations in the book until we worked out a plan that helped us get the bills paid and get out of debt, even when there wasn’t a regular, predictable income coming in every month.
Here’s what we did:
Budgeting and Paying Off Debt when You’re Self-Employed
1. Figure out your bottom line expenses.
Even though your income might not be regular, your expenses often are. You can figure out that you need basically the same amount each month for housing, utilities, transportation, food, minimum debt payments, etc. We worked out an amount that we had to have every month to meet our family’s basic needs.
2. Pay your bills as you can.
When you’re first starting out with a budget and paying down debt, you may not have a lot of capital to work with. So, pay your month’s bills as soon as you can with the income that is coming in. Do not buy extras. (It will pay off, I promise.)
3. Stockpile for next month.
Once the current bills are paid, start saving for next month. If you get a great commission check, do not pass go; do not collect $200. DO NOT go out for a steak dinner! Self-employment can be feast or famine, but it doesn’t have to be.
Instead, start saving for the next round of bills. Put that commission toward next month’s bottom line.
4. Any extra goes to debt.
Once we had saved a month’s budget in advance, any extra income that came in that month went toward paying off our smallest debt. When the month ended, we went back to step #3. We continued going back and forth between steps 3 and 4, until our debts were all paid.
It took 18 months. And it was really hard. But, it was worth it.
(If you’re curious or you missed the series, read more of our “get out of debt” story.)
Being self-employed can be both a blessing and a curse, but budgeting and paying down debt is not impossible with an erratic income.
My husband is self-employed with erratic payments at times. Sometimes it would seem we’re poor, the next month rich. Then, he opened a separate business account for all of his money to go into. He let this account accumulate a little, then started to pay himself the SAME AMOUNT every week. We’ve been doing this for a year now and I can’t believe we never thought of it sooner.
We have regular money coming in, but the advice works for us too. Thanks for sharing.
We are self-employed and the post I linked to today is about a time when our business went sour and we had to rely on our emergency fund. It was a scary time.
Thanks for the link-up.
My husband has always been self-employed, and this is exactly what we do.
Unfotunately we have had more famine than feast, and so our situation is tighter than ever.
We pay bills first. IF there is more, we buy food, IF possible, and other items, IF possible. But if not–and there has been much of the not in the last 4 years–we don’t buy food (and definitely nothing else, including clothing!)
It is strange when people ask me what I budget for our family of 8 for food. The “budget” allows $0. Once the bills are paid, then we consider food and other items. There is no “blow” money, as Dave Ramsey says.
We are also careful to watch our gas usage, and our utility usage.
It is extremely bare bones around here, but we feel blessed with a roof over our heads and a warm home, and running water. So many in the world do not have those things. We have food, and we have clothing–and we have each other.
Thanks for the post. We have regular income, but I hope to build my business, and it is nice to see someone else’s plan for what to do with the money.
Thanks Jessica for this timely post! almost 6 yrs ago my husband got the job that he currently has, but at the time I was so hoping he would jump on the self-employment train that I was raised with (and are still encouraged by my Dad to do). Than came complacency with hubby’s job, and the fat, dumb and happy phase – where I didn’t want him to go down that road – cause it always didn’t feel right. Now for the last year hubby has not been happy at all at his job, but it’s a not happy with all bosses and wanting to have his own business change in him. He’s finally ready to take the plunge, and while I wasn’t a year ago (and even a few weeks ago) I know he’s miserable working for someone else. Changing jobs would only be another 5 yr temporary fix for him. And a few weeks ago we finally hit on something that fits him to a T and I’m encouraged by the idea of heading to self-employment again. But I do worry about trying to get out of debt and staying there, and this post was encouraging and helpful to know just how to aim for those things. Thanks so much! (I’m going to copy and print out the article so I can go back any time I need to for a reminder!)
Since my husband is currently a student/unemployed and working erratically, these are exactly the things we need to be doing.
Great suggestions! We implemented some of those same strategies when we began our debtjourney, and were doing it on one income.
My apologies–My link should have said One BOTTLE~Many Uses! My fingers were moving faster than my mind. My bad! 🙂
My husband is not self-employed, but his job is a base plus commission structure, so I know exactly what you mean! We have had a budget for a couple of years, but have been somewhat frustrated by our up-and-down income – mainly when it comes to saving, setting goals, and planning for bigger purchases. Figuring out our bottom line expenses was something that we did in December, and that has helped us a lot. Now we have a better picture of how much is “extra” each month. We know that when we have extra, we need to save for months that are more lean so that we can meet those bottom line expenses. It’s more complicated with an income like this, but we really are very aware of how God provides!
Great recommendations! We have some regular pay and some irregular pay and it is really important for us to plan and budget to stay out of debt.