Some of us do not have a stable, steady flow of income. Maybe your income is based on commissions, or maybe you’re a student who relies heavily on allowance and part-time jobs, perhaps you’re in between between jobs, working temp jobs, or self employed. Whatever your case might be, the reality is that an ever-growing number of us are or may have had to deal with budgetting an irregular income. Budgetting is difficult enough, but trying to manage a fluctuating (and possibly unpredictable) income is even tougher! So here’s a list of tips and ideas on how to deal:
1. BUDGET! It seems silly to even say this, but I cannot emphasize this enough. As I had mentioned, budgetting with an irrecular income is especially difficult, so planning ahead is very important.
+ Method 1: Review your monthly income for the past year or so. what’s the smallest amount you’ve had to work with before? Try to work your budget around that number. So if for example, you earn between 4,000 and 7,000 a month, make sure you can life off of 4,000. This may seem difficult especially if, like in this hypothetical example, your income greatly varies from one month to another. However, this is the method that has worked for me.
+ Method 2: Average your monthly income for the past 12-36 months (some say 3 months, but I guess it depends on how much your income varies from one month to another) to determine your monthly budget. A lot of financial gurus and website suggest this and seem to have worked for many. Just be sure to save any extra from good months
2. Prioritize. When budgetting, especially for the tougher months, list all your expenses in order of importance. Then when you get your income, allocate it according to your lists’ order. This means pay your bills first. Set money for things you absolutely need (like food, groceries). Yes there will be those instances where you may not be able to buy that new gadget that you really really needed; or you might have to miss watching that movie you’ve been waiting for. It can be tough sometimes, but sticking to your priorities does pay off. Here‘s how Dave Ramsey explains the same idea, along with a worksheet you can use.
3. SAVE. Never forget about the rainy days. When you’re never assured of a good, steady pay it’s very crucial to save. Don’t be tempted to spend the extra money you make during the good months. Save it. Your savings will help you avoid having to rely on credit during the bad months or in case of an unexpected expense. Learn to live comfortably, but but avoid lifestyle inflation!
4. Reflect and Reconsider. If, after taking a long, hard look at your finances, you see that it’s next to impossible to make ends meet, then perhaps it’s time to reflect on your priorities and needs. Either you cut further back on your expenses or consider other means of income–pickup more shifts, find a second job, etc.
5. Give yourself and your budget time to get acquinted. Then, you’ll learn to get along and play nice. I always say this about budget planning: spending and budget changes is just like a lifestyle change. There is no quick way to get used to it. It can be tough, but you get used to it. You get better at it until soon enough being financially savvy becomes almost second nature.
Have something to add? Leave a comment below. I’d love to know how you deal with an irregular income!