You know you need a budget but every time you sit down and try to work on one you probably get discouraged if you have an irregular income, right? I understand how difficult it can be to create a budget with an irregular income so I want to show you a very simple way to do this so you can stop being frustrated and start working your way towards financial freedom!
We had tried budgeting many times but we had fluctuating incomes so it would get a little tricky and we would give up. When we took Financial Peace University we finally created a budget that truly worked for us and it gave us back control of our money and our lives!
To change the way I thought about money, I started substituting the word “money” with the word “freedom”. All of the sudden, financial decisions were a no-brainer.
– Whitney Cummings
Irregular incomes are quite common. Most people who work in sales or are in business for themselves have a fluctuating income. Or maybe you are paid an hourly wage instead of a salary and don’t have set hours each week? It is still possible for you to create a budget and more importantly, stick to it!
YOU NEED OPTIONS!
Options are good…I want to offer you a few different strategies to create a budget for your irregular income. Below are three different options, choose the method that would work best for your specific situation and get to work on that budget because you are officially out of excuses, my friend 🙂
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BUDGET WITH YOUR AVERAGED INCOME
In order to create a budget for an irregular income, you need to determine your baseline. This is the base income you will use to build your budget around.
With the averaged income method you will take the average of the last 6 months of income and use that number as your base income for the month.
If the last six months have been a little higher than normal and you have reason to believe the next few months may not be a good then extend the length of time you’re averaging to nine or even twelve months and use that number as your baseline.
Once you have your base income then you know what you’re working with. Use your financial inventory worksheet to fill in your expenses.
BUDGET WITH YOUR LOWEST INCOME
If the thought of using an “average salary” isn’t exactly making you feel all safe and secure then perhaps using your lowest possible monthly income is the best bet for you!
Personally, this would be my choice since I’m kind of neurotic and don’t want to take the chance that I could run out of money at the end of the month (been there, done that, don’t care to go back)!
Take the lowest income you’ve brought home in the last six months and use that as your baseline. Using this method ensures that you will have enough to cover your expenses and more importantly, it’s great because anything extra you end up earning will feel like a bonus! And, helllooooo, who loves extra money? This girl!!! I mean…and you. #obvy
Now that you have established your baseline, continue on creating your monthly budget.
BUDGET WITH LAST MONTH’S INCOME
The last method I want to suggest is to live on “rice and beans” (as Dave Ramsey would say) for a month or two until you save up enough money to bank a month’s worth of expenses!
This can be tough, especially if you’re currently getting out of debt by working your debt snowball; however, I think this method would be the most comforting and the stress-out-the-least-each-month (that’s the technical term) method because you are basically building your budget around the prior month’s income.
By using one of these three methods to determine your base income you can be certain that you won’t overbudget or overextend yourself during the month and come up short, forcing you to either use credit or dip into your emergency fund!
WHAT IF YOUR INCOME DOESN’T COVER ALL EXPENSES?
When creating your budget on an irregular income, if you have a month that might be short you will have to make a few tweaks!
You will have to prioritize your expenses. I know that can be tough but just remember, once you’re out of debt there should be plenty of money to cover every expense, every month!
Number your expenses in order of priority. #1 being the most important – absolutely must be paid that month. A good example is the basics: shelter, utilities, food, and transportation. So all essential expenses pertaining to those categories should be the first few numbers.
Next, number the rest of your expenses accordingly. Hint: now is the time to make good, honest choices. Changing your behavior patterns and creating new habits are essential to success in budgeting!
When the money comes in you pay your expenses starting at #1 and go down the list until the money runs out! It’s as simple as that…whatever does not get paid must wait until you earn more money. Do not put it on a credit card! I want you to move forward, not back! Just work harder next month to increase that income and pay right down the list again!
That’s it guys, that’s how to budget with an irregular income, don’t overcomplicate it! I hope this post helped clarify some things for you, I know it can be overwhelming but when you break it down step by step you can easily create a budget that will help you regain control of your finances!
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Do you currently use any of these budgeting methods for your irregular income? I’d love to hear any other suggestions you might have!
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