Having a hard time on how to budget an irregular income? If you are a freelancer, a salesperson, a contractor, or self-employed, chances are you do not have a regular monthly income. The money you can make will vary depending on how many projects you were able to finish or how many sales you were able to generate.
When you are new to budgeting, you may have a hard time at first doing it even though you have an almost fixed number every month. What’s more, if you do not have a stable income? If you belong to this group, then let this be your guide on how to budget an irregular income.
Steps On How To Budget An Irregular Income
1.) Identify The Absolute Needs
Write down all of your necessary expenses starting from the most important down to the least. Remember that you should only need to write first what are the absolute essentials or your basic needs.
Some of your absolute essentials are food, housing – rent or mortgage, transportation, and utility bills. But do not forget to include your savings also.
2.) Know Your Minimum
You have two choices in setting on how much should be your minimum budget. First, you can base your minimum budget by tracing back how much is your least income that you were able to make in the previous year. Your second option is to take the average of your income for the whole year.
Basing your budget to your least income serves as a precaution that you do not over budget. Later on, it is better that you will have more money to spend than to cut-off your necessary expenses since you were able to make money less than you’ve projected.
This will serve as a rough estimate of how much money you should have in order to be within your budget.
3.) Create A Budget
Based on the list that you made from the first step, create a budget. You base your budget equivalent to the amount that you arrived at Step 2.
In making a budget, do not forget to include savings or investment. The reason why it is important that you list your needs from the most important to the least important is to assure that you really included the very important items to your budget.
When you just right down randomly the items, there’s a chance that you may overlook some important things. It can ruin your budget plan. Listing them based on priorities can save you time also. If you are already at the limit that you need to cut down your expenses, you can just eliminate starting at the bottom.
4.) Divide and Separate Your Money
After receiving your paycheck, it is better to separate your money based on purpose. You can make this by following an envelope budgeting system. An envelope budgeting system helps you to really monitor your expenses. You will also know how much money you left.
You can also take the easy route, make a savings account. Automatically transfer your savings into this account. Spend what’s left. This ensures that you really have a saving every month.
5.)Set Aside Your Excess Money
If you were able to generate more money than what you’ve budgeted, set aside that extra money. You can start building your emergency fund that is equivalent to your three to six months of expenses and making a money cushion.
Build An Emergency Fund
Having an emergency fund can secure you financially when a crisis arises, you have spare money to use. Just make sure that you use it only for emergency purposes, a matter of life and death situation.
Make a large money cushion
Building a money cushion can save you if you were not able to reach your targeted income. Since you are having a variable income, it cannot be avoided that you may fall short at times.
If this happens, your money cushion will come into play. You can get some amount to fill-in your shortage. Of course, you are going to take only how much is your shortage. This way, your emergency fund or your other savings are still intact.
6.) Always update
Be sure to always track on how you perform. Assess if your budget is really applicable. You need to find the right ingredients for your budget plan. Make necessary adjustments as soon as you see think it is befitting.
Final Thoughts
Budgeting especially when you have an unstable income is challenging. However, with strong determination, you can do it. The key to being successful on how to budget an irregular income is to know your priority. Things that are really deemed needful for your survival. Set aside first those unnecessary things, your luxuries in life.
When you have spare money that you can spend, that is the time to treat yourself. You also deserved an award for making a higher income and for able to stick to your budget at your low income.