In case figuring out how to create a budget that works doesn’t come with its own challenges, what about budgeting on an irregular income? While I am by no means an expert at budgeting irregular income, I have had some experience with it. When you start budgeting on an irregular income, things are more complicated. When you have a set and steady paycheck, you know exactly how much money is going to come in every month, making it extremely easy to predict how much money you’ll have each month.
If you have an irregular income, your paycheck might vary by hundreds or even thousands of dollars each month. I’ve heard time and time again that there is no point in setting up a budget if you have irregular income. I completely disagree. In fact, I would say that this is EVEN MORE of a reason to set a budget. For those who can’t predict their paycheck, a budget ensures that you’ll have enough money to pay your bills, put gas in the car, and food on the table each month.
Whether your spouse is self-employed, your job is commission-based, or one of you works as a contractor, you know first-hand that there may be times where you are barely making ends meet. Here are a few steps to follow to create a budget that works for your irregular income.
How to Budget on an Irregular Income
Determine your Priorities
Take a sheet of paper, or a word document, and write down all your expenses. This includes everything from groceries, to going out with friends, to your electric bill. Once you have all of your expenses written out, rank them in order from most to least important. This will help you determine what you absolutely need to have covered each month, and what you can wait on. Things that absolutely need to be covered should include things such as food, electricity and utilities, water, and things of that nature. Whenever you receive a paycheck, start with the top categories on your list, and work your way down the list until you’ve “used” up your paycheck. I would recommend using a cash envelope system to keep yourself organized.
With this method, you’ll always be absolutely sure you’ve paid all your necessary expenses before splurging on things like a new pair of shoes or a night out.
Budget like you Have a Steady Paycheck
One of the big keys to budgeting on an irregular income is to do your best to budget as if you have a steady paycheck. This might sound a little weird, but trust me, it works. Here’s how. Take a sheet of paper and write down the lowest paycheck you’ve ever received. This is your starting point for your budget. Using this number, your job is to make sure it covers all your monthly expenses. If it doesn’t quite meet your needs, refer to the previous tip or rework as many of your numbers as you can to get them under that amount.
With this method, you are ensuring that you will always have enough for your expenses, and allowing yourself to use the extra money you may earn for any extras.
Check in with your Budget EVERY Month
This is probably the second most important thing you should take away from this blog post. At the end of each month, you should sit down and look at your budget. You will need to update your budget with what you actually made and look at how much you actually spent. Do you have any leftover money? Did you go over in other categories? This will help you see how money is working in your household. If your final total is negative, you overspent and need to make adjustments to help make sure you stay on budget. If you have money leftover, put that money into savings to help you prepare for the lower paychecks.
Having an irregular income is not an excuse not to make or stick to a budget. Your budgeting might look different from everyone else’s, and it will take some practice. When you sit down and look at your budget at the end of the month, you’ll be glad you had one.
How do you budget your irregular income?