By Erin Lowry

Have you ever thought, “I’m not good at math; therefore, I’m not good with money”? Lucky for you, personal finance is more about psychology than math. Yes, you do need to know some basic formulas, but mastery over money doesn’t require complicated mathematical expertise. But it does require a budget.  

A budget gives you control over your money, especially if your income is irregular. And you don’t need to earn a lot either. In fact, learning how to manage your cash flow on a modest income is highly beneficial because as your earnings grow, so too can lifestyle creep.  

Let’s break down three steps you can use to build a budget that works for you. 

Step 1: Get Organized 

The first step to building an effective budget is getting organized.  

Why? Because one of the biggest blockages to getting control in your financial life is not knowing how much you’re making and spending. A lot of people, especially those earning irregular income, don’t know how much their business grosses in a year or how much it costs to manage their professional and personal lives.  

Run an Audit on Your Finances 

Take the time to run an audit of your finances for work and life. How much do you have coming in and how much are you spending monthly? Don’t forget to include annual or semi-annual costs like membership fees and insurance payments. You can prorate the annual cost by dividing the annual fee by 12. Then include that cost in your breakdown of monthly expenses.  

Separate Business and Personal 

It’s a challenge to get clarity if your accounts are commingled. You must have separate bank accounts for your personal and professional money. If you decide to incorporate your business, then you will, legally, need to set up a business bank account and use it exclusively for work. 

If you’re a sole proprietor who doesn’t legally need a business bank account, then you can set up a personal checking account that you use exclusively for business. Some banks do allow you to set up a business account as a sole proprietor.  

Here’s what it looks like to have separate accounts:  

• You get paid into your business checking account—even if it’s not technically labeled a business account by the bank.  
• You should have a credit card you use just for business expenses. 
• The separation makes it much easier to track business expenses at tax time to take appropriate deductions. It’s also easier to handle an audit and legitimize what’s on your tax return.  

Pay Yourself a Salary 

The final step of getting organized is figuring out your salary. How much are you going to move from your business account to your personal account each month? Knowing how much you’re earning monthly will help regulate the rest of your personal financial life, even if your salary is a modest amount. You don’t need to incorporate your business and become an S-Corporation or LLC in order to pay yourself a salary.   

Step 2: Create a Spending Plan (aka Build Your Budget) 

Your business and personal accounts are separate. You’ve done the research to determine how much your life costs. Now, it’s time to create a spending plan for your personal life. There are a few options here: 

The Forward-Looking Budget System 

Here’s how that works: 

• The money you receive this month from work is what you’ll use to budget for next month. That income is used to project what will happen later, not to play catch up for expenses you have now.   
• This strategy helps the money accumulate when you have those big earning months. 
• It’s easy to overspend when you have high income months and overestimate the true expenses of your business.  
• It’s not 100 percent fool-proof if you go through a sustained downturn, but then the focus must be switched to generating more income instead of just trying to cut costs to survive.  

There are three versions of the Forward-Looking Budget System: 

1. Good Budget: “I’m covering everything.” 
   
   You cover all your basic expenses + savings goals + debt repayment. 
    
   It’s important to notice that even in the “good” month, the lowest option, you need to still be saving and working on paying off your debt. This is core to building strong financial principles.  
    

2. Better Budget: “I’m covering everything, plus” 
   
   You cover your basic expenses + savings goals + debt repayment + increase discretionary spending.  
    
   You’re able to have a solid foundation and increase how much you’re spending on non-essentials and fun.  
    

3. Best Budget: “I’m covering everything I could even want.” 
   
   You cover your basic expenses + increase savings goals + increase debt payment + increase discretionary spending. 
    
   The best budget is for those with consistently high-income earning months. You don’t just want to turn the dial up on how much you’re spending for fun, but you’re also increasing your contributions towards savings goals and debt repayment.  

Remember that financial audit you ran back in the last step? There are two major budget takeaways.  

1. Look at the monthly costs of your annual (semi-annual or quarterly) expenses. Set that amount aside monthly so you’re prepared to pay for the charge and aren’t scrambling to come up with the cash when it gets billed.  

2. You know how much you need to earn monthly to cover all your expenses for life and business, which means you multiply by 12 to see how much you need annually to cover your “Good Budget”. Knowing your minimum revenue number provides focus in your business and helps you determine whether you’re ready to implement the good, better, or best budget.  

The Zero-Based (aka Zero-Sum) Budget  

Here’s how it works:  

• Similar to the Forward-Looking System, you want to use last month’s income to pay for this month’s expenses. 
• Every dollar in your salary is accounted for every single month.  
  Remember: Salary means what you are paying yourself monthly and not what your business is grossing.  
• Your income minus expenses and savings should equal zero.  
• (Income) – (Expenses + Savings) = $0  
• Build a spreadsheet or use budgeting software to direct where all your dollars are going. This includes: 
• Bills and basic expenses 
• Debt repayments 
• Savings  
• Discretionary spending  

You can keep this budget consistent month-to-month if you pay yourself a salary.  

The Zero-Based Budget can be tedious when you first get started, but it provides a lot of control over your money and ensures you know exactly what’s going on with your money. 

Does your spending align with your values?  

The process of going through all your spending habits and implementing a budget provides you the opportunity to analyze your choices. Does your spending align with your values? Do you see a benefit in all your subscriptions, memberships, and spending patterns? The answer might be yes, which is great! Or it might be time to cut what is no longer serving you.  

Step 3: How to Set Realistic Financial Goals When Income Fluctuates

You got organized and figured out a budget that works, but setting financial goals can feel overwhelming when you earn variable income. Here’s how to start: 

Your Minimum Savings Guideline 

• It’s critical to build the habit of saving, even if you aren’t a high earner (yet).  
• 35 and under: Save 10 percent of every dollar you earn. 
• 36 and over: Save 15 percent of every dollar you earn.  

Increase how much you save as you pay off debt and build financial stability. You can also increase your savings rate by 1 percent every three to six months until you reach your desired maximum savings rate.  

Be Actionable With Your Financial Goals 

• The more specific you can get with a money goal, the better. For example, “I want to save $10,000” is a good start. It’s not as strong as: “I want to save $10,000 in four years.” The latter allows you to do the math. 
• $10,000 ÷ 4 = $2,500 per year 
• $2,500 ÷ 12 = $208.33 per month 
• Saving $208.33 per month puts you on track to save $10,000 in four years 
• Set an annual income goal and divide it by 12 to see how per month you’d need to earn to achieve the goal. 
• Be honest with yourself about whether your business, as it currently stands, can achieve that financial goal or whether you need to diversify the ways in which you generate income. 

Be Creative About How Your Business Runs 

Yes, you’re an artist, but it’s also important to study your business. Not just the craft of writing, but the business of being a writer. It’s a skill to sell the product you create. Too often, writers shy away from the business side of our craft, thinking it sullies the art or that creatives are innately “bad at business.”  

But it’s critical you learn how to: 

• Go out into the marketplace and ask for business. 
• Understand your target audience—are they willing to purchase your work at a price that makes sense? 
• Effectively pitch your work. 
• Find and win clients.  

Understanding the business side provides a competitive edge and expands your opportunities. You can turn to free or cost-effective options like classes at a community college, resources for entrepreneurs from the Chamber of Commerce in your city or town, library books, and free resources offered by universities.  

As the industry continues to face challenges, it’s important to remember that you don’t have to exclusively pay your bills from your craft. Money stress causes such a disruption to creativity. Working a traditional job, whether full or part-time, can help offset some of that anxiety which in turn allows your brain an opportunity to create quality work.  

More Information 

TYPE	RESOURCE
WEBINAR	Yes, You Can Budget as a Writer
WEBINAR	Money Isn’t the Worst: Personal Finance 101 for Creatives
WEBINAR	Paying Yourself a Salary on a Variable Income
WEBINAR	Diversifying Your Income
WEBINAR	Build Your Own Career: Jobs & Gigs to Grow Your Income

Erin Lowry is the author of the four-part Broke Millennial series, including: Broke Millennial, Broke Millennial Takes On Investing, Broke Millennial Talks Money and the Broke Millennial Workbook. Erin has written for The New York Times, Marie Claire, and been a columnist for Bloomberg Opinion. She writes two newsletters: Hopefully Helpful and My Name Isn’t Mom.