If you are self-employed, working part-time, a freelance or contract worker, or have a side hustle, you may find that your income varies from month-to-month or even from job to job. This can be difficult to manage if you aren't strategic with your budgeting. Following are seven tips for budgeting when your income is irregular.
1. Identify Your Minimum Monthly Expenses
Start by figuring out exactly what money you need to cover your expenses at a bare minimum. This means the essentials, such as basic groceries, utilities, rent/mortgage, transportation, insurance, and minimum debt payments. Add these up, and you'll have a base number that will let you know the absolute least amount of income you'll need for the month. This is the priority number for your budget.
2. Plan for Extras
The minimum is the number you'll need to stay afloat. Consider extras as you budget to give yourself additional breathing room and help you afford things beyond the bare necessities. You'll need to be responsible with your planning in case your irregular income doesn't meet your minimum budget from time to time. It's best to build a buffer (an extra amount of money) beyond your minimum before you designate any extra money toward things you don't need.
3. Build an Emergency Fund
In addition to your buffer, set up a savings account specifically to use as an emergency fund. This money is for unexpected expenses that require your attention. These may include medical expenses, car or home repairs, appliance
replacements, and other unexpected hardships. Try to designate a certain amount of money to put into your emergency fund each time you get paid or on some regular basis.
4. Adjust As You Get Paid
When your income is irregular, you'll need to make adjustments depending on how much you're earning. Adjust as you get paid.
"The key to winning with budgeting on an irregular income is being flexible and staying on top of it," says Ramsey Solutions.* "One way to do that is by adjusting your budget when you get paid. If your income ends up being higher than you planned for the month, make sure you add the extra income to your budget. For example, if you set your monthly income to $4,500 but actually made $5,000, go back and add that extra $500 into your budget as income. And remember, you still want a zero-based budget. So, now you have to decide what to do with that extra $500 that came in. (Nice problem to have, right?)"
5. Separate Business and Personal Finances
If you are self-employed, it's important to keep your business and personal finances separate from one another. Use separate bank accounts and keep finances apart to avoid unintentionally withdrawing from one account or the other. Dipping into business expenses for personal use can spell trouble for your ability to stay successful. Withdrawing into personal expenses for business may leave you with inadequate funds for your current lifestyle.
6. Find Ways to Stabilize Income
If the irregularity of your income is becoming a problem, look for ways to stabilize the situation.
"This might not be possible for everyone, and you might not want to trade stability for flexibility," says Microsoft.** "But you can find little ways to make things more predictable. For instance, as a freelancer, consider taking on an anchor client who will guarantee you set hours or a set amount of money per month. And while for some jobs it may make more sense to have an hourly charge vs a flat rate, a flat rate can also provide a known quantity in your budget. You can even ask clients to pay you set amounts every two weeks or invoice in such a way that there’s always money coming in."
7. Be Strategic with Windfalls
Be responsible and strategic with any windfalls you may receive. If you receive a large amount of money, consider the best use for it before automatically spending it. Decide if it's best to invest the money, put it into your emergency fund or create a larger buffer in your checking account.
Irregular income can be less predictable than the 9-to-5 job. It takes a little more planning and consideration to make sure you're handling your money in the best way possible. The above tips should add more stability to life with a less predictable income schedule.
* https://www.ramseysolutions.com/budgeting/how-to-budget-an-irregular-income