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Self-Employment Paychecks – Irregular Pay

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When I first took the plunge into self-employment in July, I had already set up a separate ING saving account for my blogging income.  I also made sure it would be at or over $10,000 before I needed to start paying myself.  Then my plan was to pay myself from that account just like I was employed regularly – it was my way of budgeting in self employment.

Self-Employment Pay So Far

My plan has worked out very well so far.  I do pay myself $1650 from my Blogging Income account every 2 weeks.  I then move $500 of that $1650 into our Tax account to go along with our monthly $400 contribution, so I will have more than enough to give the IRS quarterly.  The trick has been how I should handle the rest of my monthly income.

So far I made about $7000 in July, $6800 in August, and am already at $5800 for September.  My paychecks “only” have taken out $3300 each month (2 months a year will be about $5000).  My expenses have been running between $500-$1000 a month.  That means I have had about $2500 left at the end of the last 2 months that was just extra.  My husband and I sat down and decided how we would break that up from here on out:

Monthly Extra in Blogging Income

We first move 35% of the extra into the Tax account.

The remaining part is broken down like our regular monthly extra:

Emergency Fund 25%
Investment Cash – Roth IRA’s and Stocks 35%
Vacation Account 20%
Crystal’s Fun Money 10%
Hubby’s Fun Money 10%

This has worked out amazingly well.  I also love seeing our savings and fun accounts grow so much quicker.  It has allowed us a bit of lifestyle inflation when it comes to hobbies and vacations, but we don’t feel bad since we’ve inflated our savings too.

Other Big Blogging Expenses

We probably won’t have as much extra from here on out since I have been spending and will be spending a bit more here and there on blogging.  My plan is to continue buying more sites, like I just did with Money in the 20s, and grow my income streams.  That means I will be spending a bunch in the short-run to hopefully help myself out in the long-run.  I also will be attending more blogging conferences, which will run about $1000-$1250 each.  Lastly, I will have large expenses pop up like laptops once in a while since they don’t last forever.  All of that will be taken out of my Blogging Income account before I even look to see if I have any monthly extra over my $10,000 of padding.

Are you self-employed?  How do you deal with irregular pay?

FYI:  I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year.  I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home.  If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!).  Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!
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30 thoughts on “Self-Employment Paychecks – Irregular Pay

  1. Sounds like you have a quality plan. Are you planning on 35% of your total monthly income for taxes or just the amount that’s left over. If it is the left over, will that give you enough to pay the IRS? (It may be, just curious). 🙂

  2. That is awesome Crystal. It’s like getting a windfall every month, and managing what to do with them!

    Lifestyle inflation is certainly alright if you have already met your savings goals, and your are socking away money for investments and retirements.

    I am a strong proponent of enjoying the blessings that you have been given in moderation. After all, you are now working much harder as a self-employed person, so it is nice to reward yourself. It seems like your husband is very supportive, and has been able to benefit from your new business ventures as well!

  3. I am not self employeed but I know on Gail Vaz-Oxlade’s show (Til Debt Do Us Part) she tells people to pay themselves a salary (like you are doing with the $1650 every 2 weeks) but then the rest is in savings. This savings is for when you dont bring in your $1650. She tells people that if you get too use to have the “overages” that when you don’t have them you will keep spending them.
    Just something to think about.

  4. Looks like you’ve got quite a bit of extra income and a plan for it all, sounds awesome! Looks like such a nice problem you have. I noticed that some of your earnings are being taken out of your business and you’re investing them personally. You may be able to start yourself a SEP-IRA and keep that in addition to an ira that you may already have – the contribution limits may be higher as well.

  5. Crystal- I have a question. If you keep everything in the business account and (not eliminate) reduce your paychecks – with the assistance of a crafty accountant, can you cut down on your tax liability?

  6. I’m not fully self-employed yet, but I feel like the the concept of irregular pay is a little scary. I do really like your plan for how you’re paying yourself, and it seems like you’ve thought it all out really well. I saw that J Money does something similar, too.

  7. Back when I was on a commission pay, all commissions would go into a big bucket. My paycheck would be 1/10 of that account every week. Seems like you are doing something similar.
    I would say keep doing what you’re doing. When the cushion gets too large (pick whatever threshold you want), treat it like you got a bonus from your job. You could reevaluate every 6 months to see if you want to give yourself a raise. 🙂

  8. Inspiring stuff Crystal! Great to see how you systematically divide your income. Also way to reward yourself and the hubby with your fun accounts. Do you have a set number of blogs you’ll like to have?

  9. Your planning is very impressive. Have you figured out what you wage/hour is? I realize that is not the most important part as you are building a business. How many blogs do you own now? Kudos to you for your success!

  10. First of all, congratulations! I knew you would shoot high enough, and I’m sure you’ve reached some pretty lofty goals. That being said, with all this money coming in, do you think you’ll have to start setting aside more for federal taxes?

  11. When I was self employed, I took a draw of $1,000 a week and paid myself a bonus every quarter. I also had a savings account for those unexpected expenses or if I needed something extra.

  12. Back when I was strictly self-employed, I dealt with irregular income by basically paying expenses first, then setting aside additional savings for possible lean months, and then using some for extras. On a related note, are you going to Blogworld?

  13. Awesome! Don’t forget state and local taxes and social security taxes as well! I think I would probably save a bunch the first year of self employment – to see how the ups and downs might go before I spent too much of the ‘extra’.

  14. @20’s Finances, I take $500 out of my paychecks AND the 35% of the monthly extra. 🙂

    @MoneyforCollegePro, I believe having a good time if all other bases are covered too.

    @Everyday Tips, thank you!

    @Michelle, I love Gail! I think the extra $10,000 of padding will be more than enough. 😉

    @FSYA, we split up his reffing income the same way – we are equal partners in everything, lol.

    @Jeff, I really need to look into SEP-IRA’s…

    @funancials, not to my knowledge. Since Paypal now keeps up with everything just like a bank, it is not a good idea to try to fake your income. BUT, my business trips, business expenses, and anything I use for blogging at home is all deductible. 🙂

    @Jeffrey, I didn’t see J Money’s setup, I should check that up!

    @MikeS, I LOVE the idea of evaluating my income for a raise every 6 months. 🙂

    @Buck Inspire, I have no limits yet. We’ll see. 🙂

    @Maggie, rough math puts me at about $25 an hour ($7000 per month divided by 250 hours or so). I now own 12 sites (5 blogs and 7 niche sites, but 6 of the niche sites aren’t fully operational yet). 🙂

    @Daniel, I don’t think so. I don’t have state or local taxes, so based on what I’ve picked up from other small business owners in my area of Texas, the 35% I’m putting aside plus the extra $400 a month we already save up should be more than enough since I can deduct all of my expenses, travels for blogging, and a lot of my home now that I work out of it.

    @krantcents, that sounds very well planned!

    @Jackie, I wasn’t planning to since I wouldn’t know many people there yet and I am a wussy. Will you be going?

    @Marie, I don’t have state or local employment taxes and the 35% I am setting aside plus the extra $400 a month was my plan to cover federal taxes and social security…worse and worse, I’ll dip into my padding to cover what I need if there are any bad surprises and then save even more in the future. I’ll have warning since I have to file quarterly. Plus, most of the monthly extra is sitting around in the emergency fund, vacation account, and fun money accounts still. 🙂

  15. @Maggie, I only actually post on 3 of the sites, so it’s not that impressive, lol. I spend most of my time on the advertising business I’ve started and am blogging as my hobby again, hahaha.

  16. Great plan Crystal, and awesome income. I’m still considering whether I want to be a sole proprietor or an LLC. This will affect my taxes tremendously. I would love to pay myself a “salary” but right now all the money I get goes in my Paypal account, which I have a debit card for, and I use for expenses.

  17. I’m a bit nervous about an irregular income at this moment. This is why I always see myself at least holding down some sort of a part-time job.

  18. Been self employed for almost 2 years now and this is something I need to work on. I have been justtransfering money from business to personal account as needed. This month I’m actually setting up budgets for both then next month will start actually ‘paying’ myself weekly and setting up a tax account for ince and sales tax.

  19. Crystal, I like how you move such a big chunk to your emergency fund. As we both know, being self-employed means that income is highly IRREGULAR. You could easily make double one month and nothing the next, so it’s very important to always have a few months extra cash on hand to account for those dips.

  20. Great job Crystal! I know this goes against the grain of popular thinking today but ask yourself a simple question;in my lifetime will taxes be going up or down? I believe they will only go up so my clients who put money into Roth’s and other post tax accounts are looking like heroes compared to those who put a ton on money away in pre-tax accounts and find temselves in high tax brackets 😉

  21. @Briana, I will be looking into the advantages of an LLC now that it looks like I’ll be making more than $70,000 a year…

    @MD, lol, I thought I’d be nervous too, but not when I made more in 4 months blogging than I did in an entire year at my old place…

    @retirebyforty, yes, don’t forget about the tax man because he won’t forget about you…

    @Jeff, *fake gags* ack! For a budgeter like me, I’d go nuts! BUT, do whatever works for you man!

    @Car Neg Coach, yep, as long as my blogging income account ends at over $10,000 every month, I feel safe. It also helps that I know we could technically just live off of what my husband makes…but we’d have to give up a ton of savings goals, so poop on that, lol.

    @Steve, we fully fund 2 Roth IRA’s every year. 🙂 We also have my husband’s pension, our Scottrade stocks, and my 401(k) is sitting around accumulating interest and dividends.

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