Pay yourself a steady paycheck: the holding account method
When your income changes every month, the simplest fix is to stop spending it as it arrives. Instead, every payment goes into a holding account, and you pay yourself the same amount on the same day. Here's how, step by step, with a six-month example.
- 1
Find your baseline
Look at six to twelve months of income and find your lowest normal month. That's the most you can count on. Use the calculator
- 2
Open a holding account
Point every payout, client payment and tip deposit to one account. Don't spend from it directly. The two-account system
- 3
Take out taxes first
If no tax is withheld from your pay, move a set percentage of each payment to a separate tax account as it arrives. Taxes as you go
- 4
Pick your paycheck and payday
Choose a steady amount at or a little below your baseline, and one day each month (or every two weeks) to pay yourself. Pay yourself a salary
- 5
Move it on the same day, every time
Transfer your paycheck from holding to spending. Pay bills from spending, just like a regular job. Line up due dates
- 6
Let good months fill the buffer
Extra income stays in holding. Lean months draw from it. Once it holds one to two paychecks, raise your paycheck or save more. Build a buffer
A six-month example
Income ranges from $2,200 to $4,100. The paycheck is set at the lowest month, $2,200, and the holding account starts with one paycheck in it.
| Month | Came in | Paycheck out | Holding balance |
|---|---|---|---|
| Start | – | – | $2,200 |
| January | $3,200 | $2,200 | $3,200 |
| February | $2,400 | $2,200 | $3,400 |
| March | $4,100 | $2,200 | $5,300 |
| April | $2,900 | $2,200 | $6,000 |
| May | $3,600 | $2,200 | $7,400 |
| June | $2,200 | $2,200 | $7,400 |
By June the holding account has more than three paychecks in it. That's the moment to raise the paycheck a little, start an emergency fund, or both. An illustrative example, before any tax set-aside.