Creating a monthly spending plan or budget is great, but not everyone’s personal situation is so black and white. As a freelancer, budgeting for the self-employed can be tricky.

Some people get paid weekly, others bi-weekly, and others (like me) have income that fluctuates from month-to-month. 

When Jordan still had a paycheck and we weren’t living off my freelance income, managing money from his stable income was a breeze. I took for granted knowing that we would have the same exact amount of money deposited into our bank account every two weeks. 

Now, life doesn’t quite look that way. We’ve joined the pool of workers that are freelance — and our group is expected to make up 50% of the workforce in the next decade

Here are 5 steps for anyone budgeting as a freelancer, business owner, or anyone else with variable income.


Budgeting for the self-employed 5 step guide


Our self-employed budget overview

Before I dive into the details about how we make the money work, let’s start with an overview. Jordan and I act like we are employees of our business. We keep our business accounts completely separate from our personal account. And no matter how much money the business makes, we strive to give ourselves the same monthly paycheck. 

For example, if we’ve decided that we need to pay ourselves $5,000 per month, that amount is deposited into our personal checking account each month. If our business makes more than that, great! But we still get paid the same amount. If our business makes less than that, bummer! But we still get paid the same amount. 


  Month 1 Month 2 Month 3
Income 10,000 6,000 8,000
Tax savings 3,000 1,800 2,400
After-tax income 7,000 4,200 5,600
Paycheck 5,000 5,000 5,000
Bank account cushion 2,000 1,200 1,800


This works because on average, the really good months should make up for the very bad. If they don’t, then we need to focus on making more money.

Go through these steps to help you put your budget for the self-employed together:

Step 1: Make a monthly budget or spending plan

The first step with any sort of budget, irregular income or not, is to understand where you spend your money. What are the expenses you need to pay? How much do you need to save to reach your goals? And how much do you want to spend on other discretionary income?

Step 2: Set up business checking and savings accounts

To make this plan work, you need to have separate accounts. You’ll need a business checking account to receive payments as well as pay your bills from other customers. You’ll need at least one business savings account to set aside money for bigger purchases and taxes. 

Here are the bank accounts that we currently have:

  • Business checking
  • Business savings (for future purchases)
  • Business savings (for taxes)


In addition, we have personal checking accounts, savings accounts, investment accounts, and retirement accounts. 

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Step 3: Decide on a monthly or bi-weekly paycheck amount

Based on your budget or spending plan, you’ll know what your paycheck amount should be. You don’t want this paycheck to feel overly restrictive (you work hard for your money!), but you also don’t want to spend more than you think you’ll earn. 

We’ve decided that it makes the most sense for how we like to budget our money, to pay ourselves on the 1st of every month. Each month we log into our business checking account and transfer our set paycheck to our personal checking account. 

Step 4: Make saving automated

Because we need to be really disciplined in setting aside money for taxes, retirement, and other business savings, we’ve set up an automated savings process. Because honestly, if we didn’t, it wouldn’t happen. And I know we’re not the only people like that. Chime Bank found that customers enrolled in automatic savings plans saved 3x more than customers that weren’t.

One way we’ve automated our savings is to use Qapital. This app allows you to create “rules” for your money. One rule that we use is each time we receive money into our business bank account, Qapital automatically funnels 30% to a tax savings account. This means that when a client randomly pays their invoice on the 9th of the month, I don’t need to log in and set money aside for taxes. It has truly been a game-changer.  


How much should freelancers set aside for taxes?

If this is your first year freelancing, or you haven’t done it quite right in the past, you may be anxiously wondering how much you need to set aside. It will depend on how much money you earn, what state you live in, and how many deductions you have. But we set aside 30%. 

Sounds like a lot, right? 

As a self-employed person, you’re on the hook for paying the entirety of the FICA taxes — medicare and social security taxes. When you work for a company, they pay half and you pay half. Now that you are your own company, you have to pay both sides. The FICA tax rate is 15.3% on income up to $132,900 plus 2.9% on anything earned above and beyond that. 

This is on top of the income taxes that you have to pay. We have very low monthly expenses, so we send 30% of our income to a tax savings account each month, just to be sure we’re covered. 

Step 5: Check-in regularly

Jordan and I check in on our budget formally once per month. Because things are automated and we’ve worked hard on setting up our system, these monthly check-ins take approximately 15 minutes. 

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We’ll also check in at other times during the month, just to see how things are going. But these checks are far less formal. 


Why this self-employed budgeting method works

We love this method because we don’t stress about paying our bills. Also, in leaner months, we don’t feel like we have to deprive ourselves. I don’t do well basing my spending off what I’ve made for the month — it puts me in a feast or famine mindset that keeps me far too focused on the money and less focused on more important things in life. 


An alternative self-employed budget

The above method isn’t for everyone. Some people want to reward themselves and spend more when they’ve worked hard. If that’s you, it might make sense to make a budget based on your priorities.

To do this you’d create a detailed list of your expenses in priority order: necessities (housing, utilities, transportation, groceries), savings and debt payments, and discretionary spending (eating out, travel, exercise classes, etc). Each time you’re paid, you’d still send 30% to a tax savings account, but then you’d put the remainder towards one of your expenses. Start at the top with your necessities, and as you continue to get paid you’d put money towards things that are lower down on the list. 

This method lets people enjoy when they’ve worked hard and had a great month — they’ll likely have a ton of discretionary spending. But in months where cash flow is slow, there may be little to no discretionary spending remaining. 


Most importantly, keep your self-employed budget organized

It’s one thing to set up a budget and a bank account, but it’s quite another to keep things organized. I’ve created an easy-to-implement system to keep yourself sane, even with the most inconsistent income.

Read it here: How to Organize Your Finances and Your Money Life


Erica Gellerman Bio The Worth Project

Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project: personal finance and family travel. website. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom, and Lifehacker. When she's not writing about personal finance you can find Erica exploring Europe from her temporary home base in London.

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