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. If you find yourself trying to pay down debt and stick to a budget, it can be kind of 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.
Thank you so much for this post! We are self-employed and have struggled with planning the “perfect” budget that will work for us. Thanks for the tried-and-true ideas. 🙂
Such a good post! You are right, that it’s definitely do-able, but it takes a bit more planning and organization than when you have predictable income.
We have a “green line” and “red line” on our budget. Everything above the red line is four-walls essential – and we pretty much know that our monthly income will cover that 90% of the time.
The stuff b/w the red line and the green line is really important, but not life or death. Everything beyond the green line is gravy. When we have months that go past the green line, we put that money into a “variable income sinkfund” (VISF) so we can pull it out to full the between-the-red-and-green-line stuff when we don’t make enough one month. It sound complicated, but it’s not. This way, we can pretty much afford all the needs and most of the wants. Long term savings goals get funded annually out of whatever is left in the VISF.
Thanks so much for hosting today! Such a lot of good frugal ideas. 🙂 Blessings, Lisa
Thanks for this post! Our budget is very tight and I am always looking for new ideas. It is nice to have such wonderful resources.
We are in the same boat, it’s continually feast or famine around here. In the winter my husband doesn’t make enough to cover our rent, let alone all of our other expenses. But in the summer he makes almost 4x our expenses/month. In the summer I pay rent twice a month, which usually holds us over until April when he starts to make a better wage. We use what little he does make in the winter to pay the rest of our bills (utilities, gas, food, etc.) This seems to work for us. The first year he worked at this job we ended up spending much of the money he made in the summer (cause it felt like we were rich, we had money for the first time ever!). But now we stick to a very strict budget (and don’t touch the money I make) and have found it’s not as difficult as it seems to ride the feast or famine wave, as long as you have a plan.
My husband works in construction so his work expecially in this economy is very unpredictable. I agree pay bills first. I even break that down to the most important bills are paid first (mortgage, insurance and utlities) Thanks for the post.
Number 3 is one of the most important, in my opinion. I’m a freelance musician and my work definitely comes in seasons. Thankfully I usually know ahead of time when to expect feast or famine as much of my orchestral playing is contracted for the entire season. Before I got married I was constantly looking four to six months ahead to make sure I had enough money coming in to cover my bills. I even went as far as writing checks for rents several months ahead of time. Had to stop that once I married as it drove my husband crazy. Ha ha. I know not every self employed person is lucky enough to have work contracted months in advance but that makes it even more important to always be thinking ahead.
My other tip would be to over estimate expenses and under estimate income. That helped me a lot when work or students fell through.
I’ve been a stay-at-home mom for 30 years. I wish we’d known about Dave Ramsey’s Biblical principles before digging ourselves such a big hole. After we stopped digging we looked for ways to honor God while trying to repay our debts. It is an ongoing thing.
It hasn’t been easy for me to remain home when I could be out there helping to earn money. But when looking at the big picture it is obvious to us that it wouldn’t be pleasing to the Lord if I were to abandon what we knew to be His Will for me (stay home and homeschool). The end would not justify the means.
(This was my first visit to your blog. I was sent here by my daughter, another homeschooling mom. Keep up the good work!)
Thanks for great reminders! We have yet to get into a good habit with our budget! But we just need to keep plugging away at it! 🙂
I use coupons regularly. Our Acme just closed their doors….sniff, sniff leaving us with only one grocery store in our area now.
I was able to save hundreds of dollars on items that I need/use or wanted but wouldn’t spend the money for.
With the Acme Card Sales, 30% off and coupons I was able to get 10 Raid Yellow Jacket Traps that sell for $8.94 for .70 a piece (we are seasonal campers) I also snagged items such as laundry detergent. All he detergent was $6.99 then 50% off with $2 coupon I paid $1.50 for each. Another great deal I got was Mucinex, sells for $8.99, 50% off w/$2 coupon I paid $2.50 ea. I could go on and on my stockpile is enormous and the high that I got from all that saving will never be able to be matched again!
Thanks for hosting I am already a follower!