If you work freelance or own your own business, you are well aware that your monthly income can vary widely. You might do great one month, only to find yourself barely scraping by the next. How can you establish a budget when on this feast-or-famine schedule?

Outline Your Budget

The first step is to determine exactly how much you spend each month on essentials such as housing, food, and transportation. Once you know how much you need to set aside each month for the basics, you can come up with a plan of action to ensure you don’t fall behind on payments.

Next, write down any annual or biannual expenses such as property taxes, self-employment taxes, insurance, and other irregular payments. Add your yearly totals for both regular expenses and sporadic expenses and divide this number by twelve. This represents your average monthly cost of living.

A Sample Budget

If you’re having trouble figuring out your monthly budget, the following example might help:

The total yearly cost of these basics adds up to a total of $17,860 each year, or approximately $1,488 each month. If you have an average monthly income of $2,000, you should then be able to determine how much you must spend each month on basic expenses, how much you should save, and how much can go toward other miscellaneous expenses.

Savings are Key

The key to succeeding on a variable income is to prepare for dry spells. If have an excellent month earnings-wise, it doesn’t mean its time to splurge on that new 50” plasma HDTV you’ve been lusting after. Commit yourself to setting aside this ‘bonus’ income to use during months when your income dips below the average.

Many people dream of being their own boss, but the life of a freelancer takes careful planning and work. Understand your earnings, your expenses, and create a financial plan designed to carry you through the difficult months. By planning for the future, you’ll be better able to get ahead.

_{Photo courtesy Darren Shaw}