Many careers offer a salary or consistent hours, making it easy to know exactly how much money will be earned in a month. However, there are plenty of jobs that fluctuate in the amount of income earned and the hours worked.
While some economic fluctuations (like the price of oil) are beyond your control, others are more easy to predict and subsequently control and budget for.
If you are one of those individuals that earn an irregular income, it is not impossible to follow a functional budget.
Here are some steps you can take to budget with your irregular income:
1. Figure Out Your Bare Minimum Income
Before you can begin to develop a budget for your irregular income, you need to determine what your bare minimum income is. From here, you can properly budget based on the least amount of money you could potentially make per month. You can make this step significantly easier merely by using a simple monthly budget template to chart your fiscal wants and needs.
Take a look at the past 6 months of your income. Take the lowest-earning month and base your budget on that income.
2. Calculate Your Expenses
Once you know how much money is potentially coming in, you’ll need to figure out how much money is going out.
There are 3 types of expenses:
- Fixed expenses. These are expenses that never change such as rent, mortgage payments, and insurance rates.
- Variable expenses. These expenses are necessary but can vary such as gas and groceries.
- Non-essentials. Expenses that are absolutely not necessary (but also nice to have), such as eating out and entertainment, are considered non-essential.
To get the best idea of how much you spend in the categories that can change month to month, track your spending for at least 3 months.
3. Compare Your Income to Your Expenses
Is your bare minimum income enough to cover your expenses?
If not, look at your spending and figure out where you can cut costs to better balance your budget. Apply spending restrictions on the non-essential expenses before cutting into the variable expenses.
Remember, this is based on your lowest possible income. There are likely going to be months in which you make more money. However, before you throw this income into non-essentials, and even variable expenses, you should focus on building savings.
4. Make Savings a Priority
Financial experts say that you should have at least 3-6 months worth of expenses in your savings account – especially if your income is irregular.
Even during months where you bring in your lowest possible income, you should commit to putting a percentage of your income into a savings account. Otherwise, a portion of extra income above your bare minimum should be placed into savings.
5. Reevaluate Your Budget On a Regular Basis
Budgets are not meant to be made and forgotten. You need to reevaluate your income and spending in order to readjust your budget to work for your lifestyle.
This is especially true when you earn an irregular income that could increase or decrease at any time.
You should also track your spending every 3 months to make sure you are staying on track and not spending too much money on non-essentials.
Overall, reevaluating your budget is important to maintain the motivation to continue budgeting. Otherwise, you may feel as if you are failing and give up on your budget altogether.