Faking A Predictable Paycheck When You Have Fluctuating Income

Several years ago I quit my salaried job to start developing my own company and I freelanced several days a week to supplement my income. I love being my own boss, however, one thing I learned quickly is that freelance income is very unpredictable.

While, thankfully, the jobs were steady, the amount they paid and when I got paid, was all across the board. Some months we had more than enough to cover our ideal budget, other months we took in barely enough for the basic food, mortgage, and gas costs.

It was difficult to balance this feast or famine type of income that changed every month. I was more anxious than I should have been in the lean months when we were waiting for an invoice to be paid. Thus my wife and I set out to develop a strategy that would allow us to “fake” a steady, predictable paycheck in the midst of this fluctuating income. If you find yourself in our position, hopefully, these steps will help you as well.

First, Calculate Your Ideal “Fake” Salary

The first thing you need to do is figure out your ideal salary each month. This number should be the amount of income you need each month to keep up your standard of living.

An easy way to start is to look at the average amount you made over the last 6 months and then allocate this amount among your typical expenses. If you are just starting a new job that involves fluctuating income and don’t have a history yet then you will need to estimate. Take a list of your known expenses that must be paid (house, food, gas, clothes, etc..). Then estimate the extras (eating out, entertainment, travel, etc) by what you think your standard of living will allow. If you are new to budgeting use your last 2-3 months of bank history to set your expenses. Based on what you find, figure out your target monthly paycheck. Let’s say it’s $4000.

Second, Deposit All Your Income Into One Place

I opened up a business checking account and all my freelance income was deposited into there.* The amounts of my income would vary wildly. Some months I had no income at all, and some months were three times what I needed to live on. But it didn’t matter. My only goal was to keep the balance over $4000 so that I could pay myself next month. If I made more than $4000 in a month I let it sit and accumulate to get a couple of paychecks ahead.

*If you are not self-employed or eligible for a business checking account you can use a savings account or free online checking account to deposit your income into.

Third, Set Up An Automatic Transfer To Pay Yourself Each Month

Finally, the key to creating a “fake” paycheck is to set up an automatic transfer from your “income” account to your personal checking acct. Most banks have this kind of feature on their online website. This ended up feeling just like a direct deposit of my paycheck from my previous employer. You can set it up to transfer in weekly, semi-monthly, or monthly. The frequency doesn’t matter, the main thing is to have a fixed, predictable, recurring transfer from one account to the other. I would take this deposit and allocated it to my budget just like I would a normal paycheck.

Finally, Adjust As Needed

What about if you have a month that you can’t meet your paycheck (again, let’s assume it’s $4000)? What do you do? If it’s just one month we’d transfer the difference from our emergency fund into savings. We had saved up an emergency buffer before I quit my salary job. If you find that you are constantly unable to transfer the $4000 then lower it to an amount you know you will make each month and cut some expenses as necessary. The goal is that your fake paycheck is realistic to what you are actually making.

What if the opposite is true and you have money accumulating? I kept 3-4 paychecks worth in my income account as a buffer and then every 6 months pay myself a “bonus” with anything above that. You can use this bonus as extra giving money, build up an emergency fund, invest it, or treat your family to a fun outing.

Why Go Through The Trouble?

Without this method, you might live in famine one month and like kings in the next. Having a fixed, predictable paycheck stabilizes your budget, and your standard of living, from month to month.

Before implementing this method of creating a “fake” regular paycheck, I was plagued with the fear that next month we would come up short. Stabilizing our standard of living removed that anxiety. As a bonus, I could take time off for family events and vacations knowing I would still have income when we came home. If you find yourself in our situation, this method may be the ticket to peace and stability in your financial life.

This is a contribution from Luke Ehresman. Luke is the founder and developer of NeoBudget (https://neobudget.com), a modern online budgeting app. He has successfully self-funded and bootstrapped his business by moonlighting and doing freelance programming.