Budget With An Irregular Income And Love It
I don’t have to tell you budgeting is easier with a predictable income.
However, if you are self-employed you can pretty well guarantee there will be income that is inconsistent. If you are finding yourself wondering if it is even possible to have a successful budget on an irregular income the answer is yes. it may be harder and take a little while longer but it can be done.
A budget that works does depend on an income but it is not limited to that definition only. A budget also gives you a way to figure out how much money you need to live the life you want to live.
The point is that the money you do have coming in should always work with you as opposed to working against you. This is where you will see where your priorities actually are, and what you truly feel is important.
I guess the simple answer to “should I have a budget on an irregular income” is a definitive YES! If you are a business owner, a cosmetologist, seasonal worker, a temporary worker, a freelancer, a salesperson that makes a commission, or a consultant, then it is fair to say you will have an income that fluctuates to a certain degree.
You are in the right place this article was made for you if you are living on an inconsistent income.
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Saving Needs To Be A Priority
Irregular income often results and lead to unpredictable outcomes.
You know there will be unexpected expenses that pop up out of thin air during the months that your income in lower than expected. Resulting in a financial shortfall.
With irregular income comes taking the responsibly of making savings a priority so you can weather the financial ups and downs from month to month.
For the sake of budgeting and wanting to stay afloat, I strongly recommend that you start saving a cushion of at least 3-6 months of expenses.
This shouldn’t be just any savings. In fact, it shouldn’t even be considered an emergency fund. It should simply just be a cushion for necessary expenses
Focus On The Costs
You need to be able to control your cost when living with an irregular income. You can’t expect to be able to cover every cot when you have a financial shortfall.
This will have your prioritizing expenses and having to choose which bills to pay off first.
This led me and my husband to create a starting point. This includes food, housing, transportation, and rent/mortgage, as well as medical bills.
You might find this bare bone approach difficult and hard to accept when you have to cut the cost that you enjoy such as a cable package.
In this instance, you need to decide if you are going to flourish or sink with your personal finances. Are you going to do all you can to stay afloat even when it means saying goodbye to expenses that you enjoy?
After all, the very last thing you want to do is be foolish enough to cover these “extra expenses” that aren’t necessary with a credit card.
saying no to yourself will teach you valuable money lessons that everyone should learn at some point before it is too late.
One other thing to look out for is any automated expenses that you have, you should make sure that they are essential. And if they aren’t you should be canceling them promptly.
Look Carefully For Patterns
Chances are if you are working with an irregular income you will be able to find patterns.
Being able to spot and recognize these patterns will help you manage and possibly even fix the situation of having to live with an irregular income.
For example, you may notice predictable dips during the summer months, or around the holiday seasons.
This is especially true for those who have small kids at home for the summer because this adds in the cost of childcare.
When you address these pattern you can be well prepared. You can either take on more work to prepare or you can save during the year so you are able to cover the costs when they come up.
Start A Max Cost Budget
When dealing with an irregular income it is helpful to come up with a max cost budget.
This budget should be made up of your maximum costs only with a small margin for the pop-up costs.
For instance, say your monthly cost is $3200. If you make more than that you should immediately put it into an emergency fund or a rainy day fund.
Once you become used to a certain amount outgoing, it will help teach you to say no to your self once you have reached your cap.
An example of putting a cap into motion is setting yourself a weekly or even monthly allowance for your groceries. So if your weekly allowance is $75 and you have reached your limit you should not even think about going over. Or intentionally go over by splurging.
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Here Are 3 Helpful Steps!
Step 1. Find Out What Your Minimums Are
How are you supposed to be successful if you aren’t even aware of your starting point?
When your income is based on a salary or even somewhat predictable budgets are usually creating around different spending categories within a certain limit. But when you are trying to budget around an irregular income that isn’t possible. Instead, you must work backward. Intimidating am I right?
This looks something like figuring out how much money you spend to figure out how much you will need. It’s all about finding the right balance.
You need onside to be consistent at least so if your income is not consistent your expenses better be predictable.
In order to have your expenses be predictable, they must remain consistent and stable. So don’t go switching things up.
To figure out your expenses you should only be including the non-negotiables. These are your starting point expenses so they are essential.
When you are taking a step back to figure out your expenses you need to avoid including such things as coffee, fast food, dining out, or alcoholic beverages.
Your budget should be built around the absolute lowest food cost you can live on.
Take into account any money-saving apps of coupons you will be using.
You have to be reality focused that Wendy’s meals is more like $10 NOT $5.
I recommend using your bank statement as a guide to give you an accurate idea of your spending. If you don’t want to do that you should track your spending for the next couple of weeks to get at least a generalized idea. So write it ALL down.
Having to pay for rent or a mortgage is the reality for most people. So without a doubt, it must be included within your essential expenses.
Oh and if your homeowner insurance is not paid directly with your mortgage you need to add this expense in as well.
If you are someone that works from home like I do other essential expenses you will need to include are your phone and internet bills.
If you are married you could consider looking into a shared family plan so you can cut costs on your monthly phone bill.
Didn’t think this would be a necessary expense? Think again! It is essential that you have medical insurance. If you don’t know matter how good you are with money medical expenses could bankrupt you faster than you thought was possible. What if you required surgery due to a broken leg tomorrow, what financial burden would that injury carry?
So be sure to include any medical expense as part of your starting point budget so you can be well taken care of in case of an emergency.
Do you drive to work on a daily basis like most? If so you will need to include any gas expenses as part of your necessary expenses.
Tracking this expense for a week will give you a rough idea of how much you should budget for this expense.
What about your auto insurance? Is the highest coverage with the lowest deductible really what you need or could you opt for a plan that is perhaps cheaper? If you are not sold on this at least give your service provider a call so you can be aware of the different options available to you.
Now is the time to add up all of your starting point expenses so you can see your total. Your total will be the amount you need to pay yourself every single month.
Step 2. Find Out What Your Income Is
This part can be difficult to figure out but that doesn’t mean it is impossible. It can be hard to get an accurate idea of how much you make when your income is varying from day to day.
If you are self-employed many people out there will recommend that you should add up any monthly tax costs to your starting point expenses.
However, the main thing out should be focused on today is figuring out your income for the month.
To do this you should track every single dollar that you make for an entire month.
Grab a notebook and start recording. After 4 consistent weeks add up your number so you can see a grand total. Use this as a starting point to average out your income.
When you do this you will be contributing to smoothing out maybe daily differences.
If you want to take it one step further track your income for a consistent 3 months to get a more accurate average of your income.
Step 3. Begin Your Savings
It is never ever too early or impractical to start your savings. If there is absolutely any money left at the end of the month there is no reason it shouldn’t be going into a savings or emergency fund.
Another really wise decision is to set aside some money in a savings account in case for some reason you come up short at the end of the month.
Basically, this would be considered your uh-oh cushion for those times you are not prepared for extra expenses to come up.
For many people having multiple bank accounts has helped them to keep track of their spending as well as helped keep their budget organized. Here are some different accounts you should consider opening.
Anyone who works an 8-5 would be depositing their check into here. So this is the account that essentially pays all of your bills and expenses. It is also the account that will have the most transactions for the month.
Also if you make any extra income at your job or are receiving bonuses of any kind, that money would also be placed in here.
But, once my income has reached my target for the month and I am exceeding, I transfer that money to one of my savings accounts.
Any and all business-related income goes directly into this account. And as you can expect all business-related expenses are automatically paid through this account.
In the event that there ends up to be money left over at the end of the month, I direct it to one of the accounts below.
For your personal savings, you can use it to help you save for bills or expenses you pay every 3 months, 6 months or annually. For example, if you choose to pay your auto insurance annually you would take the annual cost lets say $1800 and divide it by 12. When you do this it breaks it down for you. So if I need to pay $1800 annually I should be saving $150 per month to cover this expense. This will allow me to be punctual and meet the due date when I need to pay for it.
You could also use this account to save for a new car, a down payment, or any upcoming vacations you may want to save in advance for.
Having an irregular income is no excuse not to budget because it is possible. Use the 3 steps above to help you start making a plan for your income each month.