Budgeting is important. I think we can all agree on that. When you have a clear budget, you always know that the essentials will be taken care of and can even plan for fun things (in addition to saving money and paying off debt). It just makes life easier when you don’t have to worry about where your money is going (or try to figure out where your money went.
But how do you do you budget when you have irregular income?
For example, what if you work from home as a freelancer (or some other type of small business owner) and your income fluctuates from month to month? Or what if you have a remote job where you never know how many hours you will get from one week to the next?
How do you plan on how you will spend (or save) your money when you have no clue how much money you will actually earn?
I know that this is a problem a lot of people face, so I wanted to share some tips and strategies on how you can budget when you have irregular income. I hope it helps!
Calculate Your Expenses
The first thing that you need to do is to tally up your expenses. Think about every single monthly expense that you have. This includes your rent/mortgage, utilities, home insurance, car note, car insurance, gasoline, health insurance, pet insurance, groceries, pet food, credit cards, entertainment (such as Netflix, online subscriptions, etc), and anything else you can think of that you pay for on a monthly (or regular) basis. This also includes things like haircuts, beauty treatments, Starbucks runs, etc. Anything that you pay for at least once a month needs to go on this list. If you have a terrible memory, refer to your bank account, Paypal account, receipts, or anything else that can shed some light on your spending habits. In fact, I recommend that you do this anyway because it is easy to forget about some things.
Prioritize Your Expenses
While, ideally, we would only spend money on things we need, chances are you are buying things that are not truly essential. If you are reading this, I am guessing that you don’t have infinite cash flow, so you are probably in a position where you need to cut out any extraneous expenses. This is your chance! Sit down with the list you created in step one and put a star by everything that you absolutely must have in your life each month. I assume we all would prioritize things like our groceries, our home, our care, our health, etc. (though, with groceries, you may be able to identify some items that are more of a splurge than anything else). However, there may be some things on your list that you realize you can do without. Or that you could at least substitute for something cheaper. For example, if you have a pricey cable plan AND internet, you may decide that it is more cost effective to cut the cable and invest $20 in a Netflix/Hulu combo. Either way, this is where you prioritize ONLY the essentials and place everything else in a “if we have enough money” box.
Budget Based on Your Lowest Paycheck
Look back at the past 6 months of income and determine which month represents your lowest month. This is your worst-case scenario. If your income has not been consistently higher than this, it is a good idea to base your budget on this amount. If your lowest month was one in which you didn’t have enough money to cover all of your basic expenses, use the lowest month where you COULD cover the essentials.
Get Current on Your Bills
Do you often wait to pay bills until they become past due? Either because you forget until you get a cut-off notice or because you are buying yourself time? If so, you might be surprised how much it adds up to $7 a month extra may not seem to be much. But if you are doing this for 3 bills each month, that is an extra $250 per year! Write all of your payment deadlines on a calendar and try your best to pay your bills on time.
The 50-30-20 Rule
If you are looking for something more straightforward, you could implement the 50/20/30 rule. In this method, 50% of your income goes towards fixed living expenses (home, utilities, car, gasoline), 20% goes towards financial goals (paying off debt, savings, retirement fund, vacation fund), and 30% is for flex spending (groceries, gas, entertainment, eating out, and other expenses that change from month to month.
As you can see, budgeting with irregular income can be a bit tricky, but it’s not impossible! Do you have a great tip for how you keep a budget even though you have irregular income? I’d love to hear about it in the comments below!