Irregular income is one of the hardest parts of being self-employed. Depending on the month, your bank account could be feast or famine. Handling the unpredictability of paychecks is one of the most challenging things for freelancers… and it’s something a lot of people cope with.
Thankfully, there are ways to plan ahead of time that make unpredictable payments a bit less painful.
Why You Should Give Yourself A Salary
If your income falls into that unpredictable category, giving yourself a “salary” might be smart. That is to say… instead of putting your earnings directly into your checking account (after you take money out for quarterly taxes, of course) you put them into a high-interest savings account. You then take a set amount out of that savings account every two weeks to live on.
This makes things more predictable, and lets you set up a budget in advance. It’s a bit harder because you have to make ends meet on a bit less money than you’d have in your pocket otherwise, but gives a sense of stability that a lot of self-employed folks could use.
How To Give Yourself A Salary
Every time you receive payments from a client, deposit your earnings into a savings account after deducting 30% for taxes. Do some quick math to see how much money you earn in a year after taxes in a typical year, and divide that by 25–we’re assuming you’re working 50 weeks a year and receiving a biweekly “paycheck.”
The goal is to have enough money accumulated in your savings account that you can take out a set amount every two weeks.
Freelancers Don’t Get Salaries Right Away
There’s one big difficulty with this method: You need to have enough money in your bank account to do these regular biweekly withdrawals. This takes time.
Don’t worry if your savings account doesn’t have enough for your next paycheck. Self-employed independent contractors, freelancers, and 1099ers are generally resourceful and understand how to strategize to make things work financially.
You want to make this a goal. Save up money in your account for this method, do your best to accumulate enough of a buffer to make this happen, and plan for the future.
It’s not perfect, but it makes the financial headaches of being a freelancer much easier.