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If your income varies and you’re never sure how much you’ll be making each month, you may think you can’t budget with an irregular income. While it may be challenging, it is completely possible.
The purpose of a budget is to tell your money where to go instead of wondering at the end of the month where it went. That purpose applies to everyone, not just people who bring home the same amount with each paycheck. And if you’re not sure how much you’ll be making next month, a budget is even more important so you have a clear focus on what absolutely has to be paid.
Whether you’re an entrepreneur, building a side business, or in a commissioned-based job, a budget will help to ensure that your “necessaries” are met and give you a plan for anything extra when you have it. You are more likely to achieve financial success if you know where you stand with your income and expenses.
An irregular income can leave you stressed about emergencies and paying off debt, but a budget will help you create a plan for all of it so that you can sleep better at night.
Creating a budget when you don’t know exactly how much you have to work with can sound a bit intimidating, but it’s not.
I remember when I made the transition from working full time with a regular paycheck coming in each pay period and when I became self employed. If you’re self-employed too, you know how difficult budgeting can be under these circumstances.
If on top of that you’re struggling with emotional spending, your budget is really taking a hit.
I always advocate you work on the reasons for why you overspend first. My experiences have shown me time and time again that when we start taking care of ourselves, our finances have a funny way of fixing themselves.
But it’s a process and I understand not everyone is at the same place in understanding how to take better care of themselves and thereby eliminating overspending.
So start with these tips and learn how to master your budget with an irregular income so you don’t feel so stressed out unsure how to make it to the end of the month.
HERE’S HOW TO MASTER YOUR BUDGET WITH AN IRREGULAR INCOME
START WITH THE LOWEST MONTHLY INCOME TO DATE
It’s easier to budget with your least expected income than to try and budget with an average. You don’t know if you’ll make your average every month and it can become stressful. If you start with your lowest income, you can only go up from there.
Take a look at your income over the last year and determine the least amount you made per month during that time. If you’re just getting started, estimate the least amount you can expect to bring home based on the type of work you do and how often you’ll be paid.
CREATE YOUR BUDGET
Use your lowest monthly income estimate to create your budget. You can always add money into your budget if you make more, but you want to know that everything will be paid if you only make the lowest you expect. Prioritize your categories starting with your basic necessities.
Housing – rent or mortgage, utilities, taxes, and insurance.
Food – weekly grocery shopping, trips to restaurants and coffee shops can be added later if your income is higher than expected.
Transportation – car payment, gas, vehicle maintenance, subway, bus, etc.
Clothing – just the basics like dry cleaning or necessary clothes or shoes for a uniform. Any new clothes can be added in if you have the extra money.
Once you have all the necessities covered, anything else can be added in based on priority if you have anything left over; be sure to include saving and giving to the top of that list.
Arrange your budget categories based on when things are due. If your rent or mortgage is due on the first, place it at the end of the previous month or the first on the list depending on when you expect to receive income. If your utilities are due around the middle of the month, they can be placed third, after rent or mortgage and weekly grocery shopping.
Leave yourself a small discretionary fund for fun activities, you deserve it! It doesn’t have to be huge, a few dollars for a new book, going to the movies, an inexpensive dinner out, or meeting a friend for happy hour.
Once everything is arranged in order of due date, you can add additional items afterward like saving, giving, dining out, and entertainment at the end. Leave these blank for the current month and add them in if you’re able to.
We have a selection of tools available in the free resource library you can use to help create your budget.
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ADJUST AS NEEDED
Now that you have all of your expenses covered with your lowest monthly expected income, you can make adjustments over the course of the month. If everything is paid by mid-month and you’re still expecting another payment, you can add funds to your weekly grocery shopping, set something aside in your savings account, or plan a date night.
Just make sure you add the extra income to your budget under “income” and account for it in “expenses.” This will help you stay on track instead of wondering what happened to that extra money at the end of the month.
BUILD AND ‘UPS AND DOWNS’ FUND
When budgeting with an irregular income, it’s more important than ever to have a stash to help you through. What would happen if one month one of your accounts decides to cancel unexpectedly and you lose that commission? Or you need to take a few weeks off from your side gig? Suddenly the lowest monthly income you planned your budget around is now even lower and you might find yourself in some trouble.
Having an “ups and downs” fund will keep you from dipping into your emergency fund, savings, and/or investments to get by. It’s easy to build. When using your budget every month, on the months that you earn extra, add money to your “ups and downs” fund. It doesn’t have to be much, maybe just $100 each time. It will help to build a nice buffer for the more difficult months so that you don’t have to stress.
KEEP IT GOING
Now that you have a budget to work with, copy it over to next month and start over again, adjusting as necessary. Most importantly, make sure all of your necessities are covered first then you can budget for anything extra.
If you’re still coming up short even when budgeting just your necessities, it may be time to consider a part-time job or side-hustle where you can earn a few hundred extra each month. With so many ways to make money online these days, you can easily make what you need right from home if you’re motivated.
Budgeting with an irregular income does have its challenges and can create stress, but the better you plan how to spend your money the less stressed you’ll be. Don’t forget to use our resources and tools so you have what you need to make the task of creating a budget with an irregular income less stressful and more predictable.