Okay, so you aren’t on a salary. Maybe you’re an hourly employee, self-employed, and/or commissioned to the point of a ridiculously irregular income. The word “budget” might have a particularly cruel ring to it if your cash-flow varies month to month.
I know how difficult budgeting an irregular income can be. While our variances in income haven’t been ultra-radical, I still understand that a tight budget can become a disaster if you expect money to come in that isn’t coming. I’ve seen the panic in people’s eyes when they couldn’t pay their bills due to a commission check that didn’t show up in the mailbox.
Therefore, I’ve developed a few principles for budgeting an irregular income that once followed, will propel you into budgeting success within a few short months. The principles are difficult to implement at first, but soon you’ll easily create monthly budgets to fit your irregular income.
3 Key Principles for Budgeting an Irregular Income
- Remember to spend this month’s income next month. This creates a little mini emergency fund where if you have a dip into your income you have a buffer to take the impact. No more guessing how much money you’ll make this month. Just spend the money you made last month! It may take you a few months to get to this point (heavy financial sacrifice is required), but it is well worth it!
- Base your monthly budget allowance on the worst case income. Look back at your income over the past year or so. Which month did you make hardly anything? That’s what you want to base your income off of. If this seems like an impossibility, try harder. If it still seems like an impossibility, you might have to raise your income (try finding a job with a good base pay). I think you get the point. All the extra money you have left over after your budgeting necessities are met, you can throw toward your current financial goal (getting out of debt, building an emergency fund, etc).
- Prioritize your expenses. Fun money shouldn’t be at the top. Electricity shouldn’t be at the bottom. Remember, keep the essentials at the top of your budgeting list. Your monthly budgeted money should proceed down this list until it runs out.
That’s it! Now I know that for some of you out there it will be difficult to get this system into place. Maybe you’re behind on your bills and stressed beyond measure. Remember, the stress won’t go away until you take action and write a budget.
No longer will you have to worry about your income levels. Take all of these three key principles and put them into practice. Trust me, you’ll feel a lot better once you do!
! John wrote two articles for the book: "Budgeting for Groceries" and "How Grocery Stores Work."
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