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How To Budget When Your Income Is Inconsistent

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Ever had a $20k month followed by a $1,200 month? Freelancing can be a wild ride. Even with solid client acquisition, those feast-or-famine cycles can stress anyone out.
 
In our latest podcast episode, we're diving into something called dynamic budgeting.
 
This is the secret to turning chaos into consistency.
 
This is what creates a financial buffer in your business.
 
This is what gives you the breathing room to say no to bad projects and yes to those projects you love.
 
Listen now to learn:
  • How to create a realistic budget as a freelancer
  • The best tools for tracking expenses without the headache.
  • Strategies to build an “oh sh*t” fund
No more financial roller coasters. Let’s make freelancing sustainable and stress-free.
 
In this episode you’ll discover:
  • The no-so-obvious reason budgeting is crucial for freelancers
  • Dynamic budgeting for your lifestyle
  • Combined vs. independent budgets
  • Using your averages to create your budget
  • Factoring in fixed and variable expenses
  • Budgeting for the “stupid tax”
  • 3 steps to take for your budget
  • How to compensate for low-income months
  • Our top tools to use for your budget

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[00:00:00]

[00:00:00] Brian: I think we can all agree that sometimes freelancing just kind of sucks. we have those feast or famine months and. All the time on this podcast, we talk through ways to eliminate the feast or famine cycle that freelancers go through.

[00:00:09] Brian: However, even whenever you have your client acquisition dialed in, you can still have these wild feast or famine months. And I remember back midway through my freelancing journey, I had this wild swing from one month to next, where I had 20, 000 one month and 1, 200 the next month. And it's in these famine seasons, whether they last one month or two months or three months, where we can run out of money before the end of the month, before the next big feast month happens.

[00:00:32] Brian: And so that brings all sorts of stress on us because we can't cover just basic financial things that we have to cover as freelancers and not just freelancers, but as humans who own things and live places and have things that we like to do.

[00:00:43] Brian: So we've talked about all the client acquisition stuff that can lead to this feast or famine cycle. But tabling that for a second, we need to discuss the mistake that freelancers make on the actual budgeting side,

[00:00:52] Brian: because most freelancers tend to never adjust their budgets based on the ebbs and flows that are naturally going to happen as a freelancer. Like I said, even when you have your client acquisition dialed in [00:01:00] nicely, you can still have ebbs and flows. We don't have a salary here.

[00:01:03] Brian: We're not an employee where we just get a flat salary that's easy to budget for. I kind of envy those people to some extent because I know what I'm going to make. I know how to budget for it. And I know if I spend more than that, then I can't make up for it. Whereas a freelancer, it's easy to lie to ourselves sometimes and think uh, I usually make more than this.

[00:01:20] Brian: So I'm going to make up for myself. I can get that thing that I want this month. I'll make more money next month. Right. so we ended up doing either like one of two extremes. One is we just set a rigid budget as if we were on a salary or we just set no budget at all and just try to wing it. And that's like trying to lose weight without counting calories. It's possible. It can be done, but it's really hard to keep up progress.

[00:01:39] Brian: It's really hard to keep from making those major mistakes where you walk into a cheesecake factory and you have a nice dinner there. it's cheesecake factory. You got to get a slice of cheesecake, but you're not counting calories. You have the slice of cheesecake, you go home and on a whim you, happen to look up how many calories in a slice of cheesecake at cheesecake factory.

[00:01:55] Brian: And then you find out That favorite cheesecake that you just got it was with Adams peanut butter cup fudge [00:02:00] ripple cheesecake is one thousand three hundred and twenty six calories and you just did like a week's worth of workon your body in one slice of cheesecake.

[00:02:08] Brian: We can do the same exact thing in budgeting where we're not really keeping track of it. We don't want to look at our bank accounts. We don't really want to know what's going on there. It feels bad to look at that stuff. We don't really want to budget. It's a lot of work. It's not fun. It's not creative.

[00:02:19] Brian: I'm a creative. I don't like to do those things. eating the proverbial

[00:02:22] Brian: Adam's peanut butter cup fudge ripple cheesecake slice. in your business, so to speak. then all of a sudden you figured out you've run out of funds. You're now just going into debt. You're stressed out.

[00:02:32] Brian: And then the end of the year comes, this all happens at the worst possible time. It's tax season. And you forgot that you owe in taxes this year because freelancers, we don't get tax refunds. I don't know if you're a freelancer and you get tax refunds, let me know. I've never gotten a tax refund before. I always owe a lot at the end of the year.

[00:02:48] Brian: and sometimes it's because I just forgot to pay my quarterlies and I have a penalty on top of that. And sometimes it's because I just made more money. that's besides the point here. Either way, you have a big, tax bill due because that's just how freelancing is.

[00:02:58] Brian: And then when you [00:03:00] finally drum up the funds or go into the debt or whatever to pay that big tax bill, you're hit with the wipeout thing. Some big emergency expense comes up. Your HVAC goes out at your house. Your brand new M1 Mac Pro that just cost you three grand was dropped in a puddle of water or a pool, I don't know.

[00:03:15] Brian: anything like that just comes up and wipes you out. And now you gotta go get a day job. You're done with your freelancing career.

[00:03:20] Brian: You're basically out for good. Maybe your spouse is trying to talk you into going and get a real job because you're not, you're not very good at this freelance thing and it's not that you're not good at it. You're probably really good as a creative. That's the, challenge we have is creators or people listen to the show.

[00:03:32] Brian: You're good at what you do, but it's these other things. He's a little like, okay.budget things that client acquisition and marketing these are the things that we're actually bad at and if you keep up this sort of habit of not learning these things and Somehow finding a way to excel at these things.

[00:03:45] Brian: These are the things that take us out These are the things that starts letting those doubts creep into our head or letting our spouse talk us out of, this is a career choice for us. It's not because we're not good at what we do. It's because we're not good at the things that we don't want to do.

[00:03:55] Brian: So in this episode, I want to talk through something called dynamic budgeting. This is the thing that is [00:04:00] required for freelancers to start adhering to if you're not doing it. So if you aren't budgeting at all, you need to do dynamic budgeting.

[00:04:05] Brian: If you're budgeting as if you were on a salary and this is what I spend every month, you got to do this as well. And the reason dynamic budgeting matters is because your income is also dynamic month to month. Every month your income changes and so should your budget

[00:04:18] Brian: and sometimes our income varies because of you know We didn't plant those seeds in our garden six months ago And now we have just a barren wasteland and we're looking up and realizing we have to go do some seed work aka Client acquisition activities things that are going to drum up business for us Or it might be that you just have a normal seasonal flow to your business where you have a high season low season and these months have to be Accounted for.

[00:04:41] Brian: And if you do this well, this allows us to have longevity as freelancers. We don't want to get day jobs or else you wouldn't listen to the show and you wouldn't be freelancing. Most likely. We don't want to get day jobs. We don't have bosses. You might be like me where you're totally and utterly unemployable by any real company.

[00:04:55] Brian: So we want longevity as freelancers. We want to be able to do this self employment [00:05:00] thing for the longterm and dynamic budgeting is the thing that will allow for that because we're not just following our field or our gut. We're following actual numbers. And those numbers are going to change from month to month to month.

[00:05:10] Brian: And I'm gonna walk you through the three step process in this episode of how we can do that.

[00:05:14] Brian: Now, if you're new to the show, this podcast is for creative freelancers who offer services to clients, and you want to make more money from your skills without selling your soul. That sounds like you, you're in the right spot for my returning listeners. This is something I don't really talk about much, if ever, is like the personal finance side of things.

[00:05:29] Brian: And I try to figure out for this episode, do I want to make this just like the budget for the business specifically? Because that's really what we talk about here. I don't really talk about personal finance, but as freelancers, there's really no distinction between the two. We are our business in many cases.

[00:05:42] Brian: And a lot of freelancers that I know their business expenses and business overhead is really negligible. they have like 90 percent profit margins as freelancers. And in those cases, there's not really a big reason why you should budget percent putting budget in quotes budget for your business.

[00:05:55] Brian: It's more for your personal life. And your personal expenses can drag down your freelance business [00:06:00] just as fast as your freelance expenses can drag down your freelance business. I'm going to talk to one specific avatar for this episode, and that's going to be like a freelancer earning about 50k.

[00:06:09] Brian: I have kind of like a hypothetical example to go through in some of these numbers just give you something tangible to take away here. But if you're a higher earning freelancer here, you might want to separate this out and think through this budget thing and all these numbers. As your business separately.

[00:06:21] Brian: And that's for like, if you're high, six figures, like 150, 200 K, multiple six figures, and definitely into seven figures, you're going to have this stuff separated out from your personal life as well, and basically have a separate business and personal budget. if your life and your business are closely intertwined, I don't see any real problem combining the budgets together for your business and your personal life, as long as for tax purposes, they're separated.

[00:06:41] Brian: Your expenses and incomes for your freelance business need to be separated. Separate bank accounts, all that stuff so that your CPA can run their taxes without what is it? Fund commingling. You don't want that. It's a bad thing. But for budgeting purposes, where we're just looking at income and expenses and trying to make sure that we're not overspending and we're accounting for the highs and the lows.

[00:06:58] Brian: Again, I'll talk to the three step [00:07:00] process in a second. In these cases, just combining it into one big budget is going to be way easier. And I'll talk tools at the end of this episode. We'll talk through what tools I recommend for this, but all the tools I recommend, you can tie in. Bank accounts, credit cards invoicing tools, whatever.

[00:07:14] Brian: You can import all of these into one account. So you can have your personal account. You can have your business account, all those expenses and all those incomes into one place so that it's unified and easy for you to manage. Cause nothing's worse than you being like. A week full time income as a freelancer, which in many cities is 50 to 100 K a year.

[00:07:30] Brian: Like Nashville, 100 K is a minimum wage as a freelancer, LA, New York, especially. But if you're a rural area, 50 K is like a pretty decent income as a freelancer. But if you're on the lower spectrum here, nothing's worse than trying to like overcomplicate this for yourself. If you're just trying to have like a good life and make this easy.

[00:07:46] Brian: So 80 20 principle here just says combined personal and business into one budget, not for tax purposes, but for longevity purposes here. So this is, my three step guide to setting up a dynamic budget. So first step here is we're going to talk through calculating your average monthly [00:08:00] income.

[00:08:00] Brian: And this is super simple. You just look at your last six to 12 months of income. Six months is probably okay. If you have like big seasonal trends where like maybe there's two big dips a year or something like that, you need to account for one big dip in like January, you got to account for something like that.

[00:08:12] Brian: You might want to go 12 months just to make sure that dip is accounted for,

[00:08:15] Brian: but just use any number. Anything you have has all your financials in it. It could be your stripe account. That's probably an easy one. If you have a stripe account, it could be your PayPal account. could be your bank accounts.

[00:08:23] Brian: It might be just looking in your invoicing tool, but whichever area is going to have the most data in it. That's where we want to look for your last 12 months or six months, whatever number you want to use. For your average income. So you're just going to add it all up, divide it by 12 or divide it by six.

[00:08:35] Brian: And that's your average number.

[00:08:36] Brian: And this is going to be our baseline for budgeting to start. there's a phrase I heard. I think it was from,Dave Ramsey. He said live off last month's income. If you have a varying income, and I actually like this process way more going back to the example I gave earlier, the month where I was making 20 grand, awesome, I can live off that this month, but the month where I made 1, 200, I can't live off that next month, there's no possible way I can live off 1, 200.

[00:08:59] Brian: In that case, now [00:09:00] you're dipping into the previous month. And so that gets really messy, really hard to track really fast. So when we look at averages, that is much easier to budget for and account for as a good baseline to start. So I like this approach way more than that. Live off your last month's income kind of approach.

[00:09:14] Brian: so just give like a good hard example here. We'll say you're a freelancer earning about 50 K a year. I can give you a name. Your name's Alex. That's a good name. You're a graphic designer. You love Dungeons and Dragons. Uh, like to make sourdough. I'm putting my own personality on this stuff. You like to make sourdough and you used to play golf, but you don't anymore. So you would just literally look through your Stripe account and PayPal account. That's probably the two best places to look.

[00:09:33] Brian: If you use those two things you find that you made 50 grand the last 12 months. Look at that divided by 12. And your average baseline income we're going to be accounting for in monthly dynamic budget is 4, 166. 67. you want to get that specific.

[00:09:47] Brian: So that's the first step. This should take you five minutes. Ten minutes. 20 minutes if you are really unorganized.

[00:09:51] Brian: So we got our average baseline now. Awesome. Step two. We're going to categorize expenses. This is the part that sucks, especially if you don't have a budgeting tool or an accounting tool [00:10:00] or something that's already set up to do this. If you don't, I will point you to the direction of two different tools that I'll recommend that is probably easier to use.

[00:10:07] Brian: To do the second step if you're using that tool Otherwise, it's a very manual laborious process where you maybe export your bank transactions your credit card transactions And then put them into a spreadsheet and do a little drop down and categorize them by hand do that if you're like so broke, you just can't afford to pay like The 7 a month it costs or whatever for a budgeting tool, think about how much time is going to save you use a tool.

[00:10:29] Brian: It will save you more than 7. I promise that. So use a tool. This year, we're going to categorize this into a few different categories. We're going to look at first something called fixed expenses. And these are the expenses in your month that unchanged. They may raise occasionally over time, especially with inflation, but things like your mortgage or rent, any insurance you pay, any kind of subscription services you pay for, that's business and personal, Netflix occasionally will raise the price, but it's the same subscription every month.

[00:10:55] Brian: these fixed expenses are really important because they don't change over time. So there's [00:11:00] no variation to this. These are ones that we really can't do much about. In most cases, except for maybe the subscriptions, we can't cut out our rent or mortgage. If things get bad, we can't cut out our insurance.

[00:11:09] Brian: If things get bad, there's very little leeway here. So it's important that we know what our fixed expenses are every month, because this is like every month. These have to be paid essentially. And we can. Guarantee they're going to be there. Next is something called variable expenses.

[00:11:21] Brian: And these are expenses that vary from month to month. These are fluctuating things that can ebb and flow. They happen or they don't happen. And this is where we got to get again averages because it could be one month you

[00:11:31] Brian: paid for a conference or something. And you go there every year, but it's only once a year expense. More commonly things like utilities. That's like a usage based groceries.

[00:11:39] Brian: Another kind of usage based expense where depending on how much you eat or how expensive you order or what kind of. Store you shop at Publix versus Whole Foods versus Walmart those numbers are going to go up and down based on that So they'll fluctuate gas is another one depending on how much you drive and how fuel efficient your car is But there's other ones in this kind of variable expense category that you may not think about So just to give you one example outside of the box is like [00:12:00] client acquisition costs if you are adhering to some of the things that we talk about and teach in this podcast There are always costs associated with acquiring clients always it's either time and attention or money.

[00:12:11] Brian: if you're spending money on client acquisition, those are likely always going to be variable or fluctuating costs. So it might be that you have ad expenses. If you're running ads of some sort, whether it's PPC or, paid social, it might be that you have lunch meetings with potential clients or with past clients.

[00:12:24] Brian: You can call it networking, but lunch meetings are an expense for the business that vary. It could be that you have. Events that you attend locally that have some sort of fee associated with them. if it's a subscription or recurring fee, I'd probably put that in fixed expenses. But if it varies from week to week or month to month or how often you go, that's something I might put into here.

[00:12:39] Brian: And then there's a bunch of other things under the client acquisition umbrella it's worth thinking through and looking at your past expenses.

[00:12:45] Brian: But the best thing to do when we have this, number is look the trailing 12 months and come up with that same average. so going back to our example of Alex, Alex might have a 1, 200 rent month to month, might have 300 a month health insurance. These are the expenses. I meant to go back to [00:13:00] this 150 a month for like software subscriptions or different things he pays for. And then phone and internet might be a hundred.

[00:13:05] Brian: So the total fixed expenses are 1750 and that is pretty consistent for month to month to month It might creep up over time and then for variable expenses You might have utilities for a couple hundred bucks groceries or 400 transportation for 150 bucks, whether that's uber or car expenses or Car payment entertainment could be about a hundred.

[00:13:22] Brian: So the total variable expenses is about 850 And

[00:13:26] Brian: it's important again that we average these out or just take maybe your worst month and consider that the budget every month and anything less than that is just extra savings for you. so it depends on how conservative you want to be here. Again, averages are great because when you prepare for averages, You'll always have the regression to the mean.

[00:13:41] Brian: So if you have a really bad month expense wise or income wise, it will usually revert itself back. unless the universe is against you right now, in which case, the mean could go down. The next kind of category here is something called unexpected expenses. These are hard to count for because they are by nature unexpected, but there are a few things you can. Expect to be unexpected that [00:14:00] you can prepare for. so this might be things like equipment repairs, like a phone or laptop or any gear that you might rely on for your business.

[00:14:07] Brian: Those things will likely need to be repaired. So it's likely good to have a budget set aside

[00:14:11] Brian: There's other things in the personal life like health care not health insurance, but health care so co pays or if some medical thing happens that you need to pay out of pocket for or your Insurance only pays a certain percentage. Those are always unexpected. So having some sort of nest egg aside for those unexpected expenses is just good to have.

[00:14:27] Brian: and then finally my favorite budget in the unexpected expense category is what I call the stupid tax.

[00:14:32] Brian: And the stupid tax is for me personally. Anytime I do something really stupid that incurs a cost in my business or my life. So recently example is I have a very old car so, a 2006 Honda Pilot. I bought it in 2010. It's 2024 now. I still own it. Still have it still drive, it still runs well, and in 2021, we got these new tags in Tennessee.

[00:14:53] Brian: They went from white tags to blue tags, and I got the new tag in the mail in like 20, 21, 20 22, somewhere around there. And I couldn't [00:15:00] get the. Screws off the old tag. They were just rusted on there. And I like stripped out the screws and everything in the tag. And so I put the new tag just in the floorboard of the Honda pilot in case I ever got pulled over.

[00:15:10] Brian: But like, here's the new tag. I couldn't get it off. Sorry. Here's all the registration details, whatever. And then I forgot about it. Fast forward to 2024. Somehow I never got the renew registration. Notice in the mail for this so I never renewed it after that my wife's driving it She gets pulled over because she has like a three year old tag cop gives her a slew of tickets all of a sudden we have a wonderful stupid tax item for me not renewing this the cost to actually renew the tag the cost to get the rusted bolts off of there the cost of paying all those tickets and then probably some sort of cost of increased insurance for me because of the ding on my driving history or at least on my wife's driving history.

[00:15:47] Brian: So that is an unexpected expense. Based on stupid tax could have been prevented, but wasn't

[00:15:52] Brian: going back to our example, Alex here are 50, 000 a year graphic designer freelancer who likes to bake sourdough used to play golf, but now doesn't anymore. Alex decides to set aside about 300 [00:16:00] bucks into kind of a separate savings account or a sub account. If you're on a bank that has sub accounts in it to account for these unexpected expenses.

[00:16:06] Brian: And then final category here is savings and taxes.

[00:16:10] Brian: This category is a special one because most freelancers are just like, whatever I have left. I'll save. But they don't treat this category the way it should be treated. So when we look at things like taxes, which we have to pay emergency funds, which we will obviously need retirement, we treat this as non negotiable expenses.

[00:16:28] Brian: Just like anything else when we treat these like non negotiable expenses, then we can account for them. You will pay taxes. That's non negotiable. things will likely go wrong. That's needing emergency expenses You will probably retire one day. So it likely makes sense that you would want to set aside some sort of money for retirement.

[00:16:43] Brian: So this is where it's worth discussing a few things. First is just talking about emergency fund. This is where Dave Ramsey is like the king of advice. So I just say, do what he says to do. It's something like get six months of emergency expenses together. especially as freelancers that can help immensely with reduced stress because think [00:17:00] about how many projects we've taken on because we had to have the money how much that's hurt Our creativity and our soul.

[00:17:05] Brian: that's really close by the way of selling your soul for money. When we're taking on projects, we don't want to do because we have to pay the bills. I get it. I'm not judging anybody, but when you have a really good emergency fund, six months, 12 months, 18 months, 24 months, two years in the bank of just life expenses, I can make 0 and I can exist for two years.

[00:17:24] Brian: The amount of. Stress reduction that gives you is worth the temporary pain of building that emergency fund up the amount of stress you avoid by knowing that you are financially secure. That's what the emergency fund does for you. It allows you to say no to those clients you know are going to be a pain in the ass.

[00:17:40] Brian: It allows you to take the long approach always making the better decision for going the path that you know is the best longterm decision for you and not the quickest path to cash right now for you. The quickest path to cash usually is the worst path for you as a freelancer and as a business owner.

[00:17:54] Brian: And an emergency fund allows for that.

[00:17:56] Brian: Same with the retirement. Thanks I'm not going to harp people on retirement stuff, but just put [00:18:00] some amount of money away for that. Your nest egg.

[00:18:02] Brian: But taxes is what I really want to harp on here because a lot of freelancers mess this up. You get hit with that tax bill you weren't prepared for. It puts you under a big stress point and it might even completely deplete your Emergency fund you've been for. how much you save for taxes is 100 percent dependent on Your income bracket, what kind of state taxes you might have.

[00:18:18] Brian: And then obviously what country you're in, if you're not in the United States, but just to give you some quick rules of thumb, 30 percent of your income being saved for taxes is a good, safe bet. Very few people will end up owing more than that.

[00:18:30] Brian: So if you have a very high profit margin business where you have very few expenses, then setting aside 30 percent should be doable.

[00:18:37] Brian: 25 percent is fine for most people because you'll likely be somewhere around that tax bracket. And if you have state taxes on top of that, it might be a little more. I'm fortunate enough to live in Tennessee where we have no state taxes. So I don't even have to think about this. And then finally, if you are in a business with a lot of business expenses, Maybe you have a team, maybe you're an agency owner.

[00:18:55] Brian: Maybe you just have a lot of inherent expenses. You, You incur as a business owner, 20 [00:19:00] percent of your income being saved is likely enough because you only pay taxes on your net profit. This is not tax advice, by the way, just assume I don't know what I'm talking about. Talk to your CPA, talk to your bookkeeper accountant, but generally speaking, if you make a hundred thousand dollars and your profit is.

[00:19:14] Brian: 000 for just some quick math

[00:19:17] Brian: and you're in the 28 percent bracket, I think is what that would put that in. I don't know exactly for sure. Then you would owe roughly 16, 000, which is about 16. 8 percent of your overall 000 income. So that 15 to 20 percent bracket is good for a lot of businesses. If you have a decent amount of expenses.

[00:19:33] Brian: so bringing this back to Alex, our example here, because we've got to keep Alex in the game here. He's my avatar for this episode. Alex earned a 50 K a year. He decides to put about 30 percent of that into savings. For tax purposes, which is a big chunk that ends up being about, 1, 250.

[00:19:48] Brian: Now, obviously if you pay estimated quarterly taxes, those estimated quarterly tax payments will come from that savings. if it feels like a lot, it's because it is. Taxes are going to be something that's with you for the rest of your life. So [00:20:00] get used to paying them.

[00:20:00] Brian: All right. So that's step two. That was a long step. Step one was just calculate your average monthly income. Step two is categorizing those expenses into fixed expenses, variable expenses, unexpected expenses, and then savings slash taxes. So emergency fund, retirement savings, and taxes. You will die, you'll probably retire, and you will have emergencies come up in your life.

[00:20:19] Brian: Now, if you wanted to, you could argue that unexpected expenses and emergency fund are the same thing, and that's fine. If you look through your bank history and you're organizing things and you're categorizing things and you look through and you're like, I don't really have many unexpected expenses, just lump that savings back into your emergency fund.

[00:20:35] Brian: But if you find that you have a medical history that's got a lot of ups and downs and sometimes you just have to pay a lot or. You're in a business with a lot of equipment, like a recording studio, and you just have so many things that go out or go wrong. You gotta replace, You probably want to have a separate line item for savings for just those unexpected expenses.

[00:20:52] Brian: The emergency fund is not for unexpected expenses typically. It's really for when we have unexpected seasons of [00:21:00] just a big slump. That allows us to have the peace of mind to know that we can coast for 6 to 12 to 18 to 24 months with 0 and still survive.

[00:21:08] Brian: Most Americans are in credit card debt. I think the average is like 6, It's probably higher than that when you account for all the debt that people are in. Not counting your mortgage, because if you have a mortgage, that's fine. But consumer debt, most people have thousands, tens of thousands of dollars of consumer debt.

[00:21:22] Brian: So instead of that, let's just flip it the other way. Let's just have tens of thousands of dollars of emergency funds. It's a way better way to live your life. All right, step three, moving on.

[00:21:29] Brian: And this is where the actual dynamic part of the budget comes in. This is where we need to actually adjust the budget every month based on real time income and expenses as things coming in.

[00:21:38] Brian: If you use one of the tools I'll talk about at the end of this episode, this part becomes way easier because those tools will like have a running tally. Like Let's just say you have.

[00:21:46] Brian: 850 or 1, in that, variable budget category. And then you check it halfway through and you already have 700 in that, then you know you need to adjust that, right? It'll show you that you're 700 of the 800 spent in that category and it's time to make [00:22:00] adjustments. Maybe we can pull from another category.

[00:22:02] Brian: Maybe we have another category that's lower than we expected. Or maybe we had a, better than expected income month that we can account for. the point here is to set aside an hour every single month to do this. Treat this as if it's like a project you're working on. Like, If you have a client project and you schedule it, you're going to show up because you're getting paid to do it.

[00:22:17] Brian: And if you don't show up, you're not getting paid. This is exact same thing. If you schedule it and you show up for it and you get this done, you get all the benefits from it. If you don't, you get all the liabilities that come along with not tracking this.

[00:22:28] Brian: So when you step on that proverbial scale six months from now, and you're not the proverbial weight that you want as a freelancer, it's because you kept eating the cheesecake. Because you're not tracking this stuff and realizing the damage it's done. Yes, I did pull back the stupid food analogy I brought in earlier.

[00:22:41] Brian: But you get the point here. By setting up this regular cadence of reviewing the budget and making adjustments based on what your real time income and expenses are doing, you can avoid these massive mistakes that really pile up for people because they avoid these numbers. They don't want to look at this stuff because it's scary.

[00:22:55] Brian: And you know the numbers aren't gonna look good this month because things weren't great.

[00:22:58] Brian: by setting aside this time and [00:23:00] prioritizing it, we can now spot the problems before they really become problems.

[00:23:03] Brian: So for example, you might find that on a good month, you can start paying down debt faster. Awesome. Or in other months, you might find that because things are bad, you need to start cutting back on some of that, optional spending, those things like entertainment, going out with friends sucks, but sometimes we have to make sacrifices.

[00:23:17] Brian: We can't just maintain the same lifestyle we've always had. If we have a string of bad months, we have to make cuts. This is the thing we sign up for as freelancers. And if you can't stomach that, if you can't be okay with giving up certain things, that you feel like you might deserve because you truly have a string of bad months as a freelancer, then you're not cut out for this.

[00:23:34] Brian: And that's okay. You go get a day job. That's fine. But that's not an option I have. So I have to make this work.

[00:23:39] Brian: Another reason to review this as you might actually have these planned seasonal dips. Depending on your niche where you know that in certain months or certain times of year things get bad, but because you've planned for averages, you can maintain that lifestyle because, you know, based on historical averages, I know that the upcoming months will be better.

[00:23:55] Brian: And if you get to those months and you realize that things aren't what you thought they were going to be, [00:24:00] that's when it comes time to really start making those cuts and readjust those averages. And like big businesses, publicly traded companies, they call this adjusting their forecast companies will forecast what their planned growth is going to be.

[00:24:12] Brian: And they're planned profits. when the market changes or market conditions shift, they will adjust their forecast. And then they'll see their, their stock either shoot up or they'll see it tumble, or we're not a stock that's traded. Thankfully, good God, that would suck if that was the case.

[00:24:25] Brian: Talk about having self worth issues,

[00:24:26] Brian: but we can forecast what we're going to earn. And when things change, we can change that forecast. Again, this is the dynamic budget part that budget changes based on market conditions.

[00:24:35] Brian: So going back to our buddy, Alex here.

[00:24:37] Brian: He has a month where he earns five grand, pretty good month. 900 more than his average.

[00:24:42] Brian: since all the categories are right where they should be, and he's got more money to play with, he can take that extra 900 bucks

[00:24:47] Brian: and put a portion towards his taxes, because in good months, we need to set aside more for our taxes. He'll set a portion away for his emergency fund, a big portion of that, and a portion away for his retirement savings, depending on how aggressive he wants to be with his retirement savings. But then on the [00:25:00] flip side, on a bad month, maybe he earns two grand in a month,

[00:25:02] Brian: that's a really bad month. That's like 2, 100 under his average. So in these months, he has to find ways to cut back. So easy ways to cut back are cutting out discretionary spending.

[00:25:11] Brian: we're really good at canceling Netflix and Disney plus and all those HBO max. at canceling those for a month. We know how to do It's kind of a tedious process sometimes, but we have it on speed dial basically. We can cancel it and we'll, turn it on next month when things turn around.

[00:25:23] Brian: Maybe we shop at. Aldi instead of Whole Foods, save some money there and then maybe this month we're not putting aside money for emergency fund Maybe we're not putting aside money for retirement

[00:25:32] Brian: If things are really bad, maybe he even has to pull a little bit from his emergency fund in this case. It's not ideal, but that's what it's there for.

[00:25:39] Brian: But because he's planned for these things, he has that ability because he has the runway to do it. Versus what a lot of people have to do is they treat their credit card like a Emergency fund. And so you start dipping into that credit card that credit card balance starts going up. And now we owe interest because you're not paying more than the minimum payments.

[00:25:54] Brian: And so now we have an additional expense in our life and now we have higher overhead. Another fixed expense. So this starts to go the other way. We don't want [00:26:00] that. So let's talk about budgeting tools now because budgeting tools are the things that I think actually make this stuff work. It's really hard to do all the stuff I explained in this episode manually with a spreadsheet and just a brain.

[00:26:11] Brian: That's you. Congratulations. You're a savant. Still think you're wasting a bunch of time. Even if you can do this, doesn't mean you should. So there's two tools that I recommend for different reasons. And you probably know at least one is I can almost guarantee you don't know this other tool. You probably know if a one called wine app, you need a budget.

[00:26:25] Brian: YNAB. Everyone calls it YA in the Y NAB scene, but it's called you need a budget, very appropriate name. You probably need a budget. You probably don't have one. People don't know that you can actually use this for your business. People use this for personal budgeting all the time.

[00:26:36] Brian: I actually use YA in my business, one of my businesses at least, and I have a bookkeeper that runs it all for me, and we can create projections in it. We can create all these categories that I talked about, and then some we can budget out ahead for future months. It is a wonderful tool. The philosophy of YNAB is give every dollar a job.

[00:26:54] Brian: I think it's called zero based budgeting, something like that. It just means that

[00:26:57] Brian: every dollar that comes in, in that account, [00:27:00] you're assigning it to a category until that incoming account is zero. There are no dollars sitting in that incoming account that are unaccounted for. Every dollar is assigned to something. And if you're in negative balance, It means you don't have enough money. You gotta pull up from the other funds. It's almost exactly like Dave Ramsey's envelope system, if you've ever heard that or learned that. It's like the envelope system, where basically you just take your money and put it into an envelope every month and then pay in cash for everything.

[00:27:22] Brian: That's like ancient system that no one uses anymore. This is a digital modern 2024 and beyond version of that. The problem with it is it's extremely tedious. That's why I pay someone a decent chunk of money to do it for me.

[00:27:33] Brian: And it's easy to mess up the first time I ever tried to use this. I did it for a while. It became so tedious and hard to manage. budgets didn't add up and it just became overwhelming. I just gave up. So if that sounds like the type of path you might go down, the second tool is probably better for you.

[00:27:47] Brian: If you're like super anal retentive, you love numbers, you love spreadsheets, love reconciling accounts. Go with YNAB. It is awesome and it is wonderful for certain people. And if you have someone you can pay to run it for you, even better. For these other people, Like me, if I'm running it myself [00:28:00] and people like you, if you're running it yourself and you're not super savvy with budgeting tools I recommend another one.

[00:28:06] Brian: This is what I use for my personal finances. Since my business is bigger, I've separated completely my personal budgeting and my business budgeting. So my business budgeting where someone else does it, they do it in YNAB.

[00:28:14] Brian: My personal budgeting. I do it in this tool. It's called lunch money. There's URL for it. I have a referral link somewhere, but I don't really care. I get like such a small amount for referrals and this is genuine referral. I'm not promoting this tool for a referral link as if I ever would. It's called lunch money dot app It's like a solo founder. It's like a really small like family owned operated software company. No one really knows who this is. think my best friend Trevor found it through product hunt years ago. I've been using it for like six plus years. I love it. The reason I love this is because it reminds me of mint.

[00:28:43] Brian: If you ever remember mint. com, I don't know if it's still around. I think it got sold and changed hands. Mint. com was cool it was easy to see your budget. A lot of automated tools. the problem was it was too automatic because it was so automatic.

[00:28:53] Brian: I never checked it. I never did anything. lunch money. It's a really good blend between YNAB and Mint. There are some [00:29:00] manual things you have to do as far as approving transactions and categorizing things for the first time and then still just checking them off as like, yep, I see that, I see that, I check them off as done without being so tedious that I have to balance a zero based budgeting tool like YNAB.

[00:29:11] Brian: The cool thing is it'll, track your averages for you. So it'll tell you your income over the last 12 months on average. It'll tell you your expenses in each category. On average YNAB does this as well, by the way, it'll automatically create the averages for you and it'll suggest the budgets for the upcoming month in each category based on average spending.

[00:29:28] Brian: So it literally does exactly what I'm talking about here.

[00:29:30] Brian: And then for the dynamic part, if you check in once, twice a month, it will show you how much of the percentage of the overall budget you have actually used so far so that you can plan and adjust things accordingly. Both of these tools, YNAB and lunch money, can actually be utilized for business and personal at the same time.

[00:29:47] Brian: Even though I separate them, I could do my business and my personal expenses all in the same account. And that's what I recommend for, I think most solo freelancers to just do it all in one account. Unless you have a really good reason to separate the budgets out or you just want to separate them out.

[00:29:59] Brian: There's no [00:30:00] problem separating them either. It just is easier if you just have one big budget account for where all your personal expenses are in there. All your business expenses are in there. All your business incomes are in there. Any little side hustle incomes are in there. It's just all in one place.

[00:30:10] Brian: So it's easy to see all incomes, all expenses for your entire life without having to look between tools. That just gets really tedious. Again, for tax purposes, you cannot use this data for your taxes. You need to have some sort of accounting tool for that. Or some way to get your income and expenses, your P and L to a CPA.

[00:30:27] Brian: Talk to your CPA about this, but there are tools specifically for this. You're probably already using something like zero or

[00:30:32] Brian: QuickBooks, but these two apps are specifically for budgeting.

[00:30:36] Brian: so my hope for you is that this is inspired you to at least take the next step, which is like spend a month doing this, try dynamic budgeting for a month and see how it feels. Sign up for one of these two apps. We'll have the links to both in the show notes. They may be referral links.

[00:30:48] Brian: I don't know if we have them or not. Maybe it will be if they are, that means I'll get some like small bonus for that. Maybe you will too. I know for the bank that I recommend the bank will give each of us like 40 bucks by using my referral link. So there's actually an incentive for you to use my banking [00:31:00] link for the bank I use, but go to the show notes, sign up for one of these two apps or just sign them up based on looking them up on Google and try it out for a month.

[00:31:07] Brian: And then let me know how it goes. love to know like. reply back to an email, comment in our community, comment on the comments on YouTube if you're watching there.

[00:31:13] Brian: but the goal is to create some stability and predictability in your freelance business. One way is fixing again the marketing side. So you have consistency there. and you can call that offense, it's like generating more revenues offense.

[00:31:23] Brian: And then the other side is making sure you are spending the money you have diligently and that you're not overspending, AKA eating the 1250 calorie You're not making those major mistakes that are going to wipe you out. So if you can do the offense and the defense, that's how we have a sustainable freelance business that has longevity, something that we can do for decades, not days.

[00:31:44] Brian: And I don't know about you, but that sounds good to me. So hopefully this episode was helpful for you. I might have a couple more kind of these like personal fancy kind of topics to cover. There's some stuff I didn't get to cover to this episode. So I'll If I get a good response here, maybe I'll do some more of these, but either way, thank you so much for listening to this podcast.

[00:31:58] Brian: I really, really appreciate [00:32:00] you taking time out of your day to listen. So until next time, I'll see you next week on the six figure creative podcast.

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