Budgeting for Irregular Income

Learn More About Budgeting for Irregular Income

Budgeting for an irregular income can be a difficult task. There is no “perfect” way to budget money, but every individual can choose how to spend their money however they choose. The big question is…How much money do you need to cover basic living expenses? Those expenses typically include housing, utilities, food, transportation, or even medical bills. The first step to creating a budget is to think about your goals and priorities. Do you need to prioritize your rent? Or paying down debt? Keep those variables in mind when you are creating your budget. That can help you sort through your expenses and effectively establish new spending habits.

Create Your Budget for an Irregular Income

Once you have a complete list of all your expenses, add up the total monthly cost of each expense – that’s what you will need to spend to cover your bills.  Tip: If one of your expenses changes (like an electric bill), tally the total cost for the year and divide by 12 to get an average. The expenses that change from month to month are called variable expenses.

The next step is to figure out how much income you bring to the table. If you’ve got an irregular income, plan low. It’s better to start low than to start with an average. You can always add to your budget if you have a little bit more to spend that month. If this is your first time working on commission or living on an irregular income, don’t panic! Take a look at last year’s pay stubs if you can as a reference point. Pinpoint the month that you made the lowest amount of money and use that as your income estimate. That’s the amount of money that you want to use to calculate your income for the next couple of months. It’s only a starting point, you can always adjust as you go. 

With an irregular income, dividing your expenses over 12 months is the way to go. Some months are going to be better than others or simply more profitable. Determine your income for the year and divide by 12. Use this number as your “monthly” salary. Also, make sure to prioritize saving your money each month!

Get Emergency Cash if You Need to

When you have an irregular income, it’s even more important to prioritize building an emergency fund. An emergency fund is for big unexpected expenses like losing your income or getting in a car accident. Ideally, this fund should cover the emergency. Many Americans can’t pay for an unexpected expense of $400 – so make sure to save as much as you can with each paycheck. Some people like to implement the 50/30/20 rule into their life, which tells you to put away at least 20% of your income each month into a savings account.

Save Extra Money if You Can

If you’re prioritizing paying down debt such as a loan or credit card, the extra money can help you pay more off in a shorter amount of time. The interest you’re paying on debt is likely higher than what you earn in savings, so paying extra towards debt will save you money in the long run. Be generous and pay as much as you can without sacrificing too much. 

Write Your Expenses Down Each Month

When you spend money, write it down. You can use your notepad on your iPhone or go the old-school way and have a journal. Whatever way you decide to do it, make sure to write it down. The goal is to subtract the amount you spent from your income aka budget. You will know how much money you have left to spend and avoid overspending. The same goes for income, when you make money, add that to your planned income for the month. 

New Month, New Budget

You did an amazing job creating a new budget for the month but guess what? It’s time for a new one. Before the month ends, plan to take some time during the day to sit down and write it all out. Income, expenses, and spending should all be tracked every month. Please remember to make adjustments along the way! Your budgeting efforts will be worth it!