It may be a popular belief that budgeting is only for those that have steady income, but budgeting for irregular income is encouraged!
Starting a budget plan can be beneficial for people from all different financial backgrounds. You may have commission-based employment, or contract work that can experience low hours.
Regardless of your current financial status, a budget can help you determine where you stand on your financial journey and help you obtain financial stability when you receive irregular income.
Getting Started on Budgeting for Irregular Income
While getting started on budgeting may seem like a daunting task, it is not as complicated as you might think–especially if you have the right resources. Budgeting can be broken down into a few simple steps for convenience.
Here are a few questions to keep in mind about budgeting for irregular income:
What is the Lowest Predicted Amount for Your Monthly Income?
One of the easiest ways to start budgeting is to estimate the lowest possible amount of income you receive, rather than calculate an average. By planning for the worst outcome, you can find a more flexible starting point for your lifestyle budget.
Go through your pay stubs from the past year and find your lowest monthly earnings. Use that amount as a guide for your budget plan. You want to start with a lower number, as it can be easier to add money to the budget rather than deduct it. For example, if you took out a title loan, you can add the funds into your budget at the end of the month.
Effectively Create a Budget Based Off that Number
Creating a budget is much simpler when you have an estimated income to go off of. Once it is established, the next step is to determine your expenses throughout the month. Your expenses can be separated into two different categories:
- Fixed Expenses
- Variable Expenses
Your fixed expenses will not change month to month. These expenses should be a priority, such as your rent, car payments, utilities, and any loan payments you may have.
Your variable expenses usually change throughout the month. These can be costs such as clothing, groceries, gas, and entertainment. Usually, when you are adjusting your budget, these are the expenses with the most variance.
Adjust Your Budget and Track Your Spending as Needed
As the month goes on, be sure to track your expenses and look out for any changes in income. One helpful tip for doing so is to carry your budget with you, either in a physical ledger or through an app on your phone. By having easy access to your budget, it can be easier to adjust or document your purchases.
The first few months will be a test drive for you, as it’s going to take time for you to get comfortable tracking your own finances and establishing a sense of responsibility.
Create a Safety Net within Your Budget
One of the most important steps in creating a budget for irregular income is to formulate a safety net for when business may be slower, or when you may have an emergency expense.
What you can do to secure yourself financially is designate at least 10% of your income into a savings account every month. This will ensure that you have a backup plan for when finances are tight!