Lumpy vs. Consistent Investing as a 1099

As an employee, I'd automatically have money taken out of my paycheck and invested in my company's 401k plan.

As a 1099, I get paid once a month in slightly different amounts and I have to set aside money for taxes, savings, and investments myself.

The way I used to invest and save as a 1099 was just to manually move funds around to savings accounts or my solo 401k whenever I saw the balance in my checking account getting large enough.

So one month I'd deposit $5,000, do nothing for 4 months, then invest $10,000, then nothing for a while, etc.

My savings and investments were lumpy! As a result I probably invested less than I should have.

I recommend automating this to the extent possible using Ramit Sethi's method.

Automate Your Finances Using Technology and Psychology

Scroll down to the section he has for irregular income.

The basic idea is

• Leave 2-3 months of regular expenses in your checking account
• Estimate the amount you'd earn in a year, and divide by 12 to get the average monthly income amount
  • Note: As a solo federal 1099 sub-contractor, you income is more consistent than the average freelancer so this shouldn't be too difficult. Annual billable hours X billable rate is your annual income.
• Set up auto transfers to investments and savings (amount is up to you but probably 10-30% of your income)
  • If you set up a solo 401k and your bank doesn't allow auto transfers, set a recurring calendar reminder to do this once per month
• Live your life

The buffer in your checking account allows you to not worry whether you have enough money it or not.

Some months you'll have more and other months you'll have less but if your income and expense estimate was fairly accurate it should average out about the same.

The auto transfers mean you don't have to make a decision every few months to save or invest.

You just make the decision once and transform your lumpy investing into consistent investing.

Automating investing and savings has freed up a lot of mental energy for me so I can focus on other things.

I recommend you implement a similar system.

Want the full playbook? Check out Going 1099.