Originally published Jan. 13, 2024
I hear it all the time: “I can’t budget when my income is inconsistent.” The truth is, if your money is inconsistent, you need to be budgeting way more than the average biweekly paycheck earner next to you! Budgeting an irregular income is a tad bit trickier, but it’s not an impossible task.
When using the steps below, remember to keep a couple of things in mind. Although your income may vary greatly, many of your expenses will not. So even if you have a great month, you have to plan ahead and recognize that at some point in the future you could run into a not-so-great month. And, you may not know the exact dates for when your income actually comes in. Accidents don’t make appointments, so you may very well have a need for extra money before even your basic needs are taken care of, or your average income for the month has been met. It’s up to you to take care of you!
Use the steps below to help you with budgeting inconsistent income.
Determine your average monthly income
The more months you can include, the better, but don’t use any less than three months to determine your average. If you’ve had a substantial windfall that is out of the ordinary or some other income that you know is not recurring, then don’t include it at all. This is your time to create a realistic plan for your life moving forward. Utilizing any misleading information from the past will only hurt your future planning.
Decrease non-necessities
Once you figure out your monthly average income, compare it with your monthly expenses. If your expenditures can only be met on your good months then you have some cutting out to do. Your expenses must be based on your average monthly income; not the great months which can come few and maybe even far in between. Anything that is putting you over budget and can be labeled a want should be put aside until you can increase your income for at least three consecutive months
Create a cushion
To plan for the unexpected events, I suggest creating a cushion within your budget of about five to 10%. In essence, I’m asking that you not budget to the last penny. Every unexpected event that occurs doesn’t have to be a state of emergency. What if you are out on a sweltering day and really need a nice, cold bottle of water? I’d hate for $0.99 to break the bank!
Determine a dollar amount for your opportunity fund
No matter how inconsistent your income is, one thing is certain; you must pay yourself before you pay anyone else if you plan on truly achieving personal finance success. Many leading financial writers may call this an emergency fund, however; I just cannot bring myself to use those words. I believe that what you verbalize, you magnify in your life. So, if you wait for a rainy day, then you get a hurricane. Instead, allow your “opportunity” fund the ability to take care of any possibilities, good or not-so-good that may come your way. This will help you on the months when your earning is below the average.
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