Sophie is my money therapist.
Even though she says I’m really good at managing my money, and I am pretty good at keeping track of my income and expenses (spreadsheets!), I know I could be way better.
For example, here are a couple important areas in which I currently suck:
- Cash. As a musician, I get paid in cash quite often, and it rarely makes it to the bank. I end up spending what’s in my wallet, which means that all of my bills (set up through online banking) are paid with a limited portion of my income – the income that comes in the form of a cheque or email transfer.
- Budgeting. What’s my monthly average income? I have no clue. Therefore I have no budget.
I told her about this great article I read called How To Budget for an Irregular Income. This article is the missing link for me. See, I’m always interested in the idea of budgeting. Every once in a while, I buy a book about it. I get into it, get out my pen, totally prepared to do the work. And then I get stumped. I get stumped before I even get started, because it’s usually the FIRST thing to fill out on the worksheet…
monthly income: _________
What? I don’t know my monthly income. It’s always changing!
And then I give up.
Well this little article solved that problem for me.
If you’re a freelancer of any sort, you should read it. If you don’t have time, here are the main points to take away:
- First, project your cash flow based on your minimum monthly income from last year. (Read the article for more details about how to calculate this)
- Use two bank accounts. One for your “business,” which is where your income goes. The other is your personal account, from which your bills and expenses get paid
- Most importantly, and this is huge…”Pay yourself as if you were an employee. Your monthly salary is whatever you calculated as your monthly budget, your minimum monthly income from the past twelve months.”
So that’s my plan. I’m going to figure out my cash flow, open up a business account, and pay myself as an employee.
How about you?
If you’re a musician or freelancer of any kind, how do you manage your money?