6 tips to budget with an irregular income
Budgeting is crucial even with an irregular income. Not only will it help you avoid going into debt, it will help you manage your money better as you work towards achieving your short term and long term financial goals.
Financial advice articles often call for “budgeting for your regular income.” Generally, traditional budgeting practices ensure that your spending does not overtake your income.
But what happens if you do not have a stable income, are a freelance worker, own a small business, or are a gig economy worker?
While you cannot always control the size of each paycheck or when you get paid, you can take control of your money by practising some budgeting hacks to help you manage the financial extremities:
- Determine your average monthly income
This is the basis for any budget. It is especially important to budget an irregular income because high- and low-income periods are involved. Start tracking early because you need to know how much money will be coming in and how much you will spend.
You can achieve this by reviewing your accounting records or bank statements. Many budgeting apps can also help with tracking by automatically pulling up your transactions, especially online transactions. Use your lowest monthly income over the past year as your average income and work around it.
- List your expenses
Once you have planned for all the money coming in, prep for all the money going out. This refers to your ‘must-pay monthly bills’ such as food, rent, utilities and the minimum amount required for debt payments.
If the money allows, it is important to have a miscellaneous line and budget for nonessentials like subscriptions, streaming services, restaurants and personal spending. It is, however, advisable that you remember you may not enjoy certain extras every month.
- Track your expenses
While budgeting is planning where your money will go, tracking shows you where the money went in real time. Track every single expense you have as the month goes by by subtracting an amount from its budget line every time you spend. That way, you’ll know how much money you have to spend and plan accordingly.
- Review your budget every payday
It is important that you stay flexible, especially with an irregular income. Adjust your budget as soon as you get paid. Add the extra income to your budget if it ends up being higher than planned.
Then, you might revisit one of those extras you cut back on when you first made your budget and reward yourself.
- Make a new budget
Compared to working with a regular monthly income, the budget for an irregular income is never the same. You must add month-specific expenses over the current month’s budget for the next so that you are ahead of your money and tweak it as needed.
- Create a buffer account
Creating an additional savings account can be the life hack you desperately need. Reserve funds act as a safety net and will cushion you when your income is not as predictable as you would like during low-earning months.