UPDATE: I wrote a little book about this very topic! You can get your own copy for the paltry sum of $4 here: Freelance Budget Matters Ebook
As a self-employed person who gets occasional lump sums of money, rather than a monthly or weekly paycheck, planning for solvency year-round can be a bit of a trick. Somehow I have managed this task for years, keeping large sums in my checking account, knowing "that is for my living expenses in September" or what have you, but I always felt a sense of nagging urgency in the back of my mind.
Well, you know I love systems. AND NOW I MAY HAVE DEVELOPED THE BEST ONE YET! This is basically a large-scale "envelopes" scheme. Bear with me as I attempt to explain.
- Start an account with ING Direct, an awesome online bank that used to offer awesome interest rates, until our economy tanked.....sigh. Starting up with them is really easy to do. It is free, and the online account(s) link directly to your regular bank account. Email me for an invitation, and we both get a little cash bonus!
- Open 6 accounts and name them as follows: January/February, March/April, May/June, etc. You could open 12 accounts if you prefer, but this feels obnoxious to me.
- Determine your budget needs per month. There are a million online tools to help you do this if you don't know how to. I love this one by Dave Ramsey. So, let's pretend I figure out I need $1000 a month to survive (this is just for funsies, folks).
- Beginning with the Jan/Feb account, deposit $2000 ($1000 a month for 2 months, see?). Do this in every account until you run out of money from your savings.
- Step back and take stock: Maybe you have enough money to fill your goal of $2000 in all six accounts. YAY! Stop working for a year. JUST KIDDING. REALLY, KIDDING.
- Whenever you get a paycheck, deposit it into the next account until there is $2000 in each account. **note: If this is a job that is not taxed in advance, I tax myself...put 25% of this check into a special "tax fund," so it is there in April when I need it.
- At the beginning of each month, transfer $1000 from the appropriate account into your checking. Pay bills, etc.
- At the end of each month, if there is money any left over, transfer ahead to another lean month OR put in a special savings.... I have a "couch fund," a "computer fund," and a "christmas fund."
ps. this is the simple version. In addition to my monthly "envelopes" I have other accounts for saving towards special goals, and also a retirement account. There is a line item in my monthly budget for that retirement savings, so I get used to contributing every single month.
Now, what is better than a little financial peace of mind?? Let me know if you have any questions!