Working a commission-based job or running a small business means you won’t make the same amount of money every month. Unlike salary earners, your income is not fixed. Some months, you’ll earn bigger—other months may not be as great. But irrespective of how much you earn monthly, you should be able to manage your finances efficiently. This is why it’s paramount you learn how to budget on an irregular income.
Truth be told, building a budget when you don’t have a fixed income can be a little bit tricky. You have to pay attention to everything, like your spending habits, emergency expenses, and savings. However, this won’t be a challenge if you understand the strategies to budgeting on an irregular income.
Follow the six steps discussed in this blog post, and you’ll do just fine.
What Does It Mean To Have An Irregular Income?
Having an irregular income means you don’t earn the same amount of money every month as regular employees who earn salaries. If you are an entrepreneur, for example, your income will typically be determined by how much profit your business yields.
However, having an inconsistent income isn’t a bad thing. As long as you know how to build a budget to plan for your expenditure, you’ll thrive financially.
How To Budget On An Irregular Income
The steps to build a budget with irregular income are simple and can be adopted by anyone. Once you get used to this budget method, it becomes easier to plan for your expenses. Let’s check out these steps:
Step 1: List Your Income
Know your numbers. This is the first step. How much do you earn every month and what are the sources of your income?
You may own a rented property, work a commission-based job, and even receive child support (as a single mom) altogether. You have to list these income streams to understand your financial situation better.
But more importantly, you need to determine your lowest expected monthly income. That’s what your budget should be built on, so you won’t have an unrealistic financial plan.
Examine your financial records—pay stubs and bank statements from the previous month to see how your income fluctuates. This will help you project the lowest amount you would likely make in the future. Then, you plan with that. This is how to budget on an irregular income.
Step 2: List Your Expenses
Once you’ve determined how much comes in, the next thing is to project the amount of money that will leave your bank account every month.
What do you spend your hard-earned money on? Write them down. Begin with all your essential bills such as utilities, rent, food, transportation, and whatnot. Insurance, debt payments, and childcare are also necessities that should be planned for.
Then you can consider non-essentials such as dining out, subscription boxes, streaming services, and other personal expenses. However, ensure you don’t overstretch your luck.
As a person of modest income, you might want to cut down on costs sometimes. For example, instead of dining out, you can decide to order pizza or prepare a new recipe yourself.
Step 3: Subtract Income From Expenses
This is another important aspect of your budgeting process. You should subtract your income from expenses to equal zero. It’s called a zero-based budget. However, bear in mind that this doesn’t mean your bank account has to be literally empty. It’s ideal to leave a few hundred dollars in there.
The idea of a zero-based budget is to give every dollar a job. Every amount of money you take out of your paycheck should be assigned to a budget line—maybe savings, debt payments, insurance, or even giving. This helps you to spend your income purposefully so that at the end of the day, you won’t be wondering where the money went. Keep this in mind as you learn how to budget on an irregular income.
Step 4: Track Your Spending
Budgeting is almost useless if you don’t track your expenses. This is something you must do in order to avoid overspending.
So, how do you track your expenses? It’s simple! Whenever you spend money on something you’ve budgeted for, subtract the cost from its budget line. This way, you can monitor the expenditure and prevent your spending from going overboard. This is how to practically work with a budget.
Besides, it’s a smart way to hold yourself accountable at the end of the month for money spent.
Step 5: Make Adjustments
When learning how to budget on an irregular income, you have to be flexible. This means you should adjust your budget as you earn. If your income becomes higher than what you already have in mind, that’s not a problem at all. Simply add that extra money to the budget.
For instance, if you thought you’d earn $4,000 but eventually made $,4750, the extra $750 should be added as income. However, don’t forget we are maintaining a zero-based budget. So, contribute this extra income to a budget line like your savings account, debt balances, or investments.
Step 6: Create A New Budget Ahead Of The New Month
At this point, you’ve created a budget. Commendable! But that doesn’t mean you stop. There’s still a bit of work to make sure that you remain consistent with the financial plan. You have to build a budget for every month, and since your income fluctuates, every budget would be different than the last. You’ll have to make adjustments along the way, depending on what your financial situation demands.
Mind you, this doesn’t mean you have to carry out a lot of work. You aren’t building the budget from scratch. You are only tweaking it to manage the new expenses you may have in the following month. For instance, you may want to get a birthday gift for your BFF or fix your car. A new budget should plan for these costs.
This is one of the best tips for budgeting on an irregular income.
Tips To Help You Stick To Your Budget When You Have Irregular Income
It’s easy to learn how to budget on an irregular income, but sticking to the plan can be challenging. Notwithstanding, here are some tips to help you stay consistent with your budget:
1. Find An Accountability Partner
Sometimes it’s very difficult for us to caution ourselves when we aren’t doing the right thing. We need someone to do that for us. This is why getting an accountability partner is a brilliant decision.
It could be your spouse, sibling, or a close friend. You need someone to cheer you on and also call you out when you’re falling off with your budgeting plan.
Sometimes you may be tempted to make impulse purchases, miss debt payments, or fail to track your spending. Who would be there to remind you to stay on track? Exactly, your accountability partner!
This is how you stay accountable, especially if you aren’t used to building a budget in the first place.
2. Learn To Avoid Unnecessary Expenses
This is one thing that can help your finances when you are learning how to budget with an irregular income.
You should never be compelled to spend on anything that isn’t important and on your budget. Of course, you may encounter emergency expenses. You may have to break your budget to handle the costs if you don’t have an emergency fund. But when it’s not an emergency, it’s OK to say NO!
Reduce the amount of time you spend on social media since there are a bunch of ads on the news feed that may tempt you to shop online. Also, if you receive regular newsletters from marketers or businesses trying to sell products or services, then maybe you should unsubscribe.
3. Check Your Social Calendar
There are some important dates on your calendar that would warrant you to spend money. It could be your wedding anniversary, your best friend’s birthday, or any event at all that may surprise you with expenses.
I remember some time ago when I was trying to stick to my budget. Then I got a call from my youngest sister—she called to remind me of her birthday. Immediately, I knew I had to budget for that. I wasn’t going to pay for the party, but I certainly needed to get her a gift—and that costs money.
Hence, it’s wise to check your social calendar as you create a budget every month. You don’t want to be taken aback by expenses you aren’t prepared for.
4. Plan Your Meals
Eating at restaurants all the time will only burst your budget. It’s not a good idea. As someone learning how to budget on an irregular income, one way to stick to your plan is to avoid dining out. No matter how busy you are, you can make time to plan your meals. You should also create a grocery list and stick to it.
Besides, if you think you’re a lousy cook, that’s not a big deal. You can always learn to make better meals if you put your mind to it. Get a cookbook or find helpful tutorials on YouTube for free to sharpen your skills in the kitchen.
5. Set Up Auto-Draft
While budgeting for your expenses, it’s normal that you plan for your savings goals as well. So when you fail to make those savings deposits, it’s safe to say that you aren’t sticking to your budget. The best solution for this is to set up automatic bank drafts. This way, you don’t have to manually pay money to your savings accounts. The money would be paid straight out of your paycheck on your behalf.
Another obvious benefit of setting up auto-draft is that you won’t be tempted to spend the money meant for your savings or important bills on something else. Before you think about accessing the money, it would have been paid already.
6. Stop Using Credit Cards
If you’re obsessed with using credit cards, you can’t learn how to budget on an irregular income.
Getting a credit line doesn’t really help your finances. What it does is motivate you to spend beyond your means, believing that you’ll be able to pay back later. To stick to your budget, you need to avoid using someone else’s money which requires paying back with interest and fees.
If you currently have credit card debt to pay off, it’s not too late to start. Make it a goal to pay the minimum every month without taking any more credit. As soon as you become debt-free, spend only “your money” by using a debit card or cash when shopping.
7. Be Realistic
Let’s be honest. One important step to achieving any goal is to ensure that you’re realistic from the onset. Otherwise, you’ll only set yourself up for failure. So as you learn how to budget when you have an irregular income, don’t try to exceed your capacity. Your budget lines should be realistic if you want to be able to stick to them.
For instance, saying you’ll fuel your car only once a month may not be a realistic goal, especially if you commute to work every day with that same car. But you can choose to avoid dining out for a month since you prepare your own meals at home. That’s achievable!
If you want to win at budgeting, you have to keep it real. Understand that your situation is unique. Don’t compare yourself with other people who may have completely different goals.
Final Thoughts On How To Budget On An Irregular Income
You don’t win a race by folding your arms. You have to put in the work. You have to practice and stay consistent with the goal. That’s how you win eventually.
So, when it comes to learning how to budget on an irregular income, you have to be ready to do the necessary work—listing income and expenses, subtracting the income from your expenditure, tracking your spending, and most importantly, sticking to the budget.
Moreover, you can make this process smoother by using some budgeting tools—mobile apps created to handle the basic steps for building a budget. You can learn more about these tools by checking out this guide.
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