In case you hadn’t heard, my husband started working at home with me in early March of this year. Yep, he totally quit his job…..again. So instead of putting in his 40+ hours at the funeral home, he’s spending his days twenty feet from me in our home office.

While the change has been awesome for our family, it did mean losing out on the very few work-related benefits we did have. My husband’s stable income – gone. His 401K match – gone. The small stipend his employer paid towards our health insurance – gone.

Yep, now that we both work at home, we’re completely on our own. But, are we scared? Heavens no.

As someone who has been self-employed for several years now, I have learned a thing or two about what it means to have absolutely no idea how much money you’ll make from one month to the next. And we’re not just surviving, we’re thriving.

Keys to Budgeting and Surviving with a Freelance Income

Call me crazy, but I actually enjoy having a variable income. For me, it’s about the thrill of the chase. Now that I no longer have stable employment, my income has the potential to fluctuate wildly based on how much (or how little) work I do. Here’s how we make it work (and how you can make a freelance income work too):

Use a Zero-Sum Budget

Zero-sum budgeting is a form of budgeting that uses last month’s earnings to fund this month’s expenses. It also requires you to “spend every dollar you earn,” with the understanding that you should pay your investments and savings accounts as if they were bills.

This budgeting method is extremely helpful for freelancers because a) it helps you base your budget on reality, not income projections, b) it forces you to live within your means, and c) it forces you to “pay yourself first.” That paying yourself first part is incredibly important for freelancers who are responsible for their own retirement savings.

Keep Your Expenses as Low As You Can Go

In April of 2014, I made around $6,650. In April of 2015, I made over $16,000.

You might look at those figures and guess that my lifestyle has changed dramatically over the last year, but it really hasn’t. Even though we earn considerably more now, we keep our core expenses around $3,500 including daycare, living expenses, groceries, etc.

That’s why this works. When you earn a variable income, it’s important to keep your expenses as low as you can. That way, a bad month won’t throw you off for good. Obviously, keeping your expenses as low as possible can also boost your savings rate. The more you earn, the more you can stash away.

Stay Out of Debt

Ever since we became debt-free several years ago, we’ve enjoyed a kind of peace and contentment we never thought possible. I don’t miss wondering how much we owe, and to whom, and planning our lives around making those payments.

Being debt-free is essential when you’re stepping out into the freelance world – partly because it helps keep your expenses low, but also because it gives you a lot more flexibility. When you don’t owe anyone money, you can take on as little (or as much) work as you want. You even have the ability to take time off to promote a special project or invest time in important aspects of your business that won’t pay off right away.

Save Money for Freelance Taxes in a Separate Account

Freelance taxes can be insanely complicated, so much so that I often feel like I need to earn a master of science in accounting to keep track of it all. Even though I don’t have my quarterly taxes down to an exact science, I’m at least smart enough to stash away a third of my income so it’s there when I need it.

That’s right. Every month, I take around 30% of what I earn and stash it away where I can’t touch it. This strategy has been helpful for me because it means I am never stressed or resentful about mailing that check in. (Well maybe a little bit.) Since it’s “out of sight and out of mind” already, I hardly feel like it’s mine.

Pay Your Retirement Accounts Like a Regular Bill

It always makes me sad when I hear that freelancers aren’t saving adequately for retirement. It’s so easy! There are plenty of strategies and brokerage firms out there, but here’s what I do:

I have a SEP IRA through With a SEP IRA, you can contribute up to 25% of your income with an annual cap of $53,000. Through my Vanguard SEP IRA, I invest in several index funds and one target date fund. And since I do business with Vanguard, I enjoy the absolute lowest account management fees out there. We also have Roth IRAs that we can max out each year. That option might go away for us eventually because of IRS phase-out rules, but we’re taking advantage while we can.

This is where zero-sum budgeting comes in handy. Instead of waiting until the end of the month to see if you have anything leftover to save, you simply list your retirement savings on your budget right beside your mortgage and utility bills. Get used to paying it along with your other bills and you won’t have to worry about eating cat foot and scraping by on social security when you’re 70.

Build an Emergency Fund That Can Carry You Through

We’ve all heard the saying, “make hay while the sun shines.” In other words, you need to save while you can just in case you encounter lean times. Before you launch into self-employment, you should have a few month’s expenses stashed away. Of course, you don’t have to stop saving once you go out on your own. Once you’re self-employed, keep saving as much as possible and build up a solid emergency fund that is big enough to carry you through hard times.

I like to stash away as much as I can during the good months. That way, the money is waiting and ready if we ever come across a particularly bad month. I hope that never happens, but I would be a fool if I didn’t plan for it.

Can You Survive On a Freelance Income?

It’s hard for people to understand how we survive without anyone in this house having a real job. However, it makes a lot more sense to people when I explain that we live well below our means and have options when it comes to saving for retirement.

The bottom line: The more you plan, the better off you’ll be. And the bigger the gap you can build between your income and expenses, the richer you’ll become. Being a freelancer might sound crazy to some people, but it can be extremely lucrative and satisfying if you know how to make it work to your advantage.

Do you live on a freelance income? How do you make it work?

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