I used to believe that budgets were only reserved for three types of people: 1) people who didn’t have a lot of money to begin with (“budget” in marketing parlance often means “cheap”); 2) the Old Boring Marrieds; or 3) people who had stable incomes.
I’ve realized the errors of my ways.
I believe everyone should live on a budget (and this goes beyond money).
This may sound bizarre, but I've found that drafting a budget creates a plan (and boundaries) for yourself before anyone else intervenes (like marketers). It gives you an insight into your behavior, values, and beliefs, and it can give you a deeper level of who you are and what you need to survive.
Old, Boring Marrieds aren’t the only ones who should live on a budget. Single female badasses should too because, well, we kind of have some macroeconomic issues impacting us (not to mention an impending recession). Sticking your head in the sand (and avoiding your personal finances) is about the worst thing you can do, especially in this environment.
Yes, a budget may be somewhat a little easier to draft when you have a regular paycheck, but that doesn't preclude those of us who have irregular income. That money still needs to be personally managed via an irregular income budget.
What is an irregular income budget?
If we're creating budgets paycheck by paycheck (which is what I recommend) as opposed to a monthly budget (which would include all of the paychecks), then an irregular income budget is just the same, and we divide it up the same.
In other words, once we receive it, we decide what our spending period is for the paycheck. Then, after we've set aside 10% for saving/investing, we cover the Six to Survive (or, our necessities) before we go down the list and allocate the rest to our other priorities and bills for our spending period. In a future post, I'm going to get more into this, but this is just a start.
So what happens if you have more than enough to cover your bills?
Let's not book a room at the Bellagio just yet. .
If you have considerable overage, you want to build a comfortable Hills and Valleys fund.
Originating in real estate, a "hills and valleys" fund means that you take an overage from a "hill" or fatter paycheck, save it, and use it to pay for a "valley" or thinner paycheck down the line.
A hills and valleys account is completely different from an emergency fund.
When I think of emergencies, I think of blood. If an emergency has occurred (and perhaps blood has spilled - metaphorically or literally), that's the only time you should use money from the emergency fund. An emergency does not mean a shoe sale at Nordstrom's or Amazon's Prime Day.
For freelancers, hills and valleys are expected. That's just the nature of the game.
What about relying on a credit card with a 0% APR?
It's not my preference.
For me, I'd just rather prepare for life's hills and valleys (and emergencies) with cash than go into debt. Yes, you still have to pay for whatever expenses that occur whether you pay before or after the money.
But if an unexpected expense comes up (and you have cash), you take care of it; it's over and done with. That expense doesn't hang around for months (or God forbid years) accruing interest and taking up cognitive load.