Create a Waterfall Budget: A Financial Plan Ideal for Freelancers and More

When you don't earn a steady paycheck each month, it can be very hard to budget properly. I'm talking about freelance writers, painters and anyone else who either works for themselves or on commissions. With different amounts entering each month, it's hard to know where to put it, and we often get sucked into throwing our money at the most urgent thing, which isn't always the best idea.

Creating a waterfall budget is just the thing to organize your money, even if it comes in drips and dribbles. First, close your eyes and picture a waterfall, not a big plunging one, just a little one that cascades over a dozen or so rock shelves, creating several beautiful mini falls. This is your budget. Each rock shelf is a category in your budget and as the money comes in, it fills the hollow in that category and then pours over into the next.

You will need to write a list of all the categories you spend money in each month, as well as those you spend money in once in a while, such as clothing or gifts. You might include categories such as Food, Groceries, Car Repairs, Gas, Phone, Electricity, etc. Don't forget to add in categories like dentist, doctor, emergency fun. But don't make this a completely boring budget. Include money for going out, new music, etc.

Now, organize these categories by importance. Obviously, food is pretty important, so it should be pretty close to the top. Your priorities will be different than mine, so it is really up to you to decide what is most important. Make a spreadsheet, or write everything down in order on a sheet of paper.

Next, write realistic amounts beside each category. Don't put $800 beside food if you know you always spend $1,000. It can help to keep a spending record for a month before starting your budget. This will ensure that you get the correct amounts. If you want to spend less, that's fine, but for the first month or two, you need to be realistic.

So, how does the waterfall fit into all of this? Well, when you get that first paycheck of the month, you apply it to your budget sheet. Let's say the first three categories of your sheet look like this:

1. Food - $750
2. Rent - $1,200
3. Phone - $75

You get a check for $2,000. So, this check would fill the first category, Food, the second category, Rent, and spill into the third category, Phone, with $50. Now your list would look something like this:

1. Food - $750 - $750

2. Rent - $1,200 - $1,200

3. Phone - $75 - $50

Every time a new amount of money comes in, you just move down the list, filling categories. This might mean you don't have restaurant money until you reach that high an amount around the middle of the month.

This budget is different from your average set spending budget. You can add any number of categories and it can be quite motivational to see if you can actually reach the lower priority ones by working harder. It's worth a try, if you find that you are struggling to pay the bills and manage your variable income, even though you earn well enough.