Question: I have irregular income so how can I create a budget if I don’t know how much I’ll have to spend each month?
Answer: Many people attempting to create a household budget have to work around the issue of not receiving the exact same pay amount each month.
For instance, contract workers, hourly employees, seasonal workers and commission-earning employees all have incomes that can vary widely from month to month.
"Who recalls when folks got along without something
if it cost too much?”
- Kin Hubbard |
It will definitely take a little more planning when you do not earn a consistent salary, but you can still plan and utilize a budget effectively even if you aren’t sure exactly how much you will earn in a particular month.
Many people who earn an irregular income make the mistake of either having no budget at all or budgeting for the highest amount they hope to earn. They mistakenly count on money that may not arrive in the next paycheck and end up having to resort to credit cards to make up the difference, in effect driving up their debt.
While there is nothing wrong with hoping for the best, being overly optimistic when creating a budget can be financially disastrous. When budgeting, you should plan for your lowest income rather than the highest.
Take a look at your earnings for the last several months. Note the highest and lowest income marks. Your budgeting should focus on the lowest amount that you believe you will reliably earn every month.
Note: Using an average amount based on irregular income from prior months is NOT advised!
Next, list out all your expenses and bills. Divide them into two lists, fixed and optional. Housing, food and utilities are examples of fixed bills while new clothes and entertainment are optional costs.
Total the fixed expenses and make sure you earn enough at the lowest expectation of your irregular income to cover them all. If you don’t, your risk of overspending and creating debt are greatly increased. (If possible, work to limit or eliminate any fixed expenses in order to ensure you don’t run into trouble.)
If you are able to cover all your fixed expenses each month, you can begin to implement your budget. Pay your fixed expenses the second you receive your pay check.
With the funds remaining you can then make choices from your list of other expenses. Ideally, you will allocate any excess monies toward savings or paying down existing debt.
If your lowest income amount cannot cover your monthly expenses, you need to consider ways in which you can lower your living expenses and/or increase your income. Yes, this means that a part-time job on the weekends or evenings may be necessary for a period of time, until you can save enough to cover the slower pay periods.
Do be sure to place some of your leftover funds from higher earning months into savings until you have enough saved to make up for future shortfalls. Once you have a comfortable cushion in an emergency savings account work feverishly to pay down any debt that you are carrying.
Above all, stay focused and committed to your budget. Planning a workable budget is almost always possible, even with an irregular income. You have to plan for the least, but always expect the best.
"One way to solve the traffic problems of this country
is to pass a law that only paid-for cars
be allowed to use the highways.”
- Will Rogers |
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Debt is NOT your friend. It's not a wonderful "tool" for building wealth. That's a myth.
