The Philippine Online Chronicles

Self-employment is an occupation many seek. For them, they desire to leave the employee position to a self-employed one. Why not?  Self-employment allows you to earn more than what the company provides you. It allows you to manage your own time and lets you attend only the meetings you’d like to attend. Best of all, self-employment allows you to be your own boss. From the looks of it, all is well with being self-employed. There is not a trace of disadvantage if you’d to venture into it. Why not be self-employed already?

Hold it right there! Yes, being self-employed is rewarding and satisfactory. But it does not become one if the income does not come on time to meet your bills. Worse if the income does not arrive at all! If the receivable is past your payables, what do you do? That is why mastering the art and science of budgeting is more important for self-employed individuals than it is for employees. Unlike the latter who can plot their budgets since they receive more or less the same amount every month at given periods (usually 15^th and 30^th), the former does not have that luxury.

How do you plot your budget then? Here are some of steps you could apply:

1. Fixed expenses comes first and above all else. Fixed expenses are expenses that are consistent every month. These include your rent or mortgage because it would be considerably hard to do anything else when the landlady decides to evict you from your own home. Although you have rights as a tenant, you don’t want to go to all that hassle just to uphold it. The same applies to your monthly amortizations.

Next are your health and medical insurances. Most people immediately lapse these at the first sign of financial difficulties. It is not wise to do so because you’d never know when something catastrophic will occur. The last thing you want to happen is these policies lapsing because of unpaid premiums. Medications and other essential items follow.

1. Variable expenses come next. Variable expenses are the expenses which are still important for your survival but can be compromised. Food is one example of a variable expense. You need to eat but you have control over what you eat. Fast food outlets offer meals that are well within the budget. Although not pleasant, eating less is also an option. Skipping those deserts and coffee-break snacks can help save some hundreds, if not thousands of pesos.

Grocery bills are also variable. You can cut down costs by buying cheaper yet competitive substitutes. You can skip those luxury items for months when incomes are lean. Forget brand loyalty for the moment too. You don’t get cash incentives for being a loyal consumer, do you? However, it is worth remembering that quality of the products you buy must not be sacrificed; only the price.

1. Discretionary expenses come last. Discretionary expenses are expenses that are neither urgent nor important. Expenses like watching movies, dining out and shopping are some of the expenses we can live without when our finances are in limbo. A word of warning though, do not use your credit card to make the purchases even if you are expecting an income prior to the paying the bill. In being self-employed, nothing is certain. Receivables are just receivables until they become cash. So don’t worsen the situation by buying things on credit.
2. Budget expenses based on income. Ideally, budget your expenses on the income you are expecting prioritizing the fixed expenses and urgent variable expenses. In case of additional income, they can go to the discretionary expenses and savings. Apply a conservative budgeting scheme. Estimate your expenses high while your income, low.
3. Borrow from your own savings. There will be instances that you are forced to dip into your savings just to tide things over. Treat yourself like a bank wherein you can borrow money from yourself but never “default” on your payment by not paying yourself back. Add some interest if possible.
4. Save as much as possible during thriving months. When business is good, try to save as much as possible. Forget about just saving 10 to 20 percent of your income. It only works when you’re employed. Your cash reserves should be as high as possible so that you can turn to it when business drops. Building contingencies should be one of your priorities as self-employed.
5. Looking for other sources of income. One of the luxuries of being self-employed is that you manage your own time. If your schedule still permits, explore the possibility of having additional work aside from your main line of business. Look for new markets to offer your services to. Enhanced your skill further. The possibilities are endless if you’re just willing to work harder.

Although being self-employed is not as easy as most people think, it is nonetheless rewarding. Once you actually muster the intricate art of budgeting, you can address its downside of having irregular income, and pretty much enjoy the status of being one.