How to Save for a House Without a Steady Paycheck

Saving for a home when self-employed

Buying a home is a major money milestone and saving up a down payment can feel daunting. If you’re a freelancer, business owner or gig economy worker without a steady paycheck, saving up can be even more challenging.

Uneven cash flow and income fluctuations can make it hard to commit to regular savings transfers. And lean months may require you to withdraw money from savings to cover your bills, making it difficult to make meaningful progress toward your major savings goals.

Putting your down payment savings in a separate account can keep you on track as you build towards your savings goal and help put some distance between you and your money, so you’re not tempted to spend it impulsively elsewhere.

Despite these challenges, saving up for a home is still possible for non-salaried workers. And it’s increasingly a reality for many individuals as the gig and freelance economy continues to grow.

So here are some best practices to keep in mind so you can commit to achieving your money milestone goals, like buying a home, regardless of the way you get paid.

1. Set Up Savings Goals

Calculate how much home you can afford based on your freelance earnings. You might not know how much you’re going to make from month to month, but you do need to know how much money you can afford to pay toward a mortgage from month to month.

So sit down and take a look at your finances to figure out what consistent expenses you can commit to, even with your inconsistent income.

Once you figure out the monthly mortgage you can afford, you can get a sense of your housing price range and work from there to calculate how much you’ll need for a down payment.

Keep in mind that as an independent contractor, a bigger down payment may improve your chances of getting approved for a home loan. So consider homes where you can put down a greater portion of the purchase price.

2. Open a Savings Account Dedicated to Your Down Payment

Once you’ve set a savings goal for your home down payment, open up a dedicated savings account for these funds. Having money for your various savings needs in one place can make it tempting to withdraw the funds needed for your home down payment for other reasons — like a vacation or a smartphone upgrade.

Putting your down payment savings in a separate account can keep you on track as you build towards your savings goal and help put some distance between you and your money, so you’re not tempted to spend it impulsively elsewhere.

Labeling your dedicated home savings account can also help remind you what you’re saving for so that you stay motivated throughout the savings process.

Take your commitment a step further by setting up a recurring automatic transfer from your checking account to your home down payment savings account each week, so that you continue to make progress on your savings goal regardless of your cash flow for the month.

3. Pay Yourself a Salary

Set yourself up with a weekly salary by depositing a regular amount from your business account to your personal account every week or two, regardless of how much your business or freelance work actually brings in.

This can bring some consistency to your personal finances, and help when it comes time to apply for a mortgage by showing lenders a more regular income.

It might take some time to adjust your budget to the changes and figure out exactly what your salary should be, but giving yourself a regular “paycheck” can go a long way in helping you better plan your finances and get in the habit of saving for your major money goals – like your down payment.

4. Find the Break Even Point

You may not know how much you’re going to make from month to month, but you can make a pretty good estimate of how much you’re going to spend from month to month by making a list of your expenses.

Start with necessities – think food, transit, current housing, etc. Be sure to factor in necessities like insurance premiums that may only be charged quarterly or annually.

Once you’ve added the monthly cost of funding your financial goals to the monthly cost of your necessities, you’ll have your break even point.

Once you’ve added up the monthly cost of your necessities, add any monthly financial goal benchmarks to that amount. This would include the amount you’ve committed to saving up for your down payment each month. It would also include any monthly retirement savings contributions, debt payments or other savings goal amounts.

Once you’ve added the monthly cost of funding your financial goals to the monthly cost of your necessities, you’ll have your break even point, the minimum amount you need to commit to making each and every month.

To calculate how much you can afford to spend on discretionary expenses like new clothes or going out, simply subtract your break even number from your previous month’s income.

This system can help you prioritize your savings goals and make earning the money needed to make progress toward your down payment as non-negotiable as the money needed to afford your necessities.

5. Save Your Windfalls

When you get a high-paying gig or make a big sale that substantially increases your income for the month, use the opportunity to make a contribution to your down payment savings account on top of your monthly baseline contribution.

It doesn’t have to be huge, and you can still use some of the surplus to celebrate, but every additional savings increase can make a big difference over time, and shorten the amount of time you have to wait until you can afford to buy your home!