An Irregular Income Without a Plan Can Be Stressful
Irregular income can feel like feast or famine. Indeed, not having a steady income can be complicated and feel like you are riding an emotional rollercoaster.
One month you are feeling comfortable and like you have your monthly expenses and financial obligations all handled and in line and, hey, you have extra income and you can even spend money on some birthday gifts or fun activities without looking.
The next month it feels like you are barely covering your living expenses. Extra cash? Ha! You literally just made your car payment. Forget any last minute trips; you have no more money for that.
When your income varies, it can give you major anxiety.
Creating Stability
The key to not completely freaking out when you have an irregular income is to create systems and stability within a fluctuating income.
Budgeting With An Irregular Income
Budgeting is an essential practice for financial well-being.
Freelancers, entrepreneurs, part-time workers, and those in seasonal jobs struggle to maintain stable finances. Whether you are juggling multiple income streams or experiencing fluctuations in revenue, finding ways to budget with irregular income is vital. In this blog post, we will explore practical strategies to help you manage your finances and achieve financial security.
#1 Average Income Budgeting
To find your average monthly income when living on an irregular income, write down twelve months of income and expenses. Divide each category by twelve to find your average monthly total for income, and your average monthly total for expenses.
Use a budgeting app, use a spreadsheet, or write it on a piece of paper. Just write it out in black and white so you can truly see what your fixed expenses, variable expenses and other monthly expenses are and what your monthly average for income truly is.
Pay Yourself First
Give yourself a monthly salary out of your average monthly income each month to cover the average monthly budget you figured out from the above explanation. Do not dip into the “extra money” from the more robust months.
Give yourself a monthly salary out of your average monthly income each month to cover the average monthly budget you figured out from the above explanation. Do not dip into the “extra money” from the more robust months.
Treat Saving Like an Expense
Transfer your monthly saving goal to a savings account or other account where you are setting aside a safety net. Treat your saving like a monthly bill that must be paid.
#2 Lowest Monthly Income Budgeting
If using an average monthly income doesn’t work for you, don’t worry, not everyone likes that method and it’s completely fine if you don’t either.
Perhaps you want to create your budget around your minimum income and create a plan based on your minimum monthly income.
This means that you will still give yourself the same salary every month, but you will be living on a more aggressive budget and potentially save more in those months with greater income.
Review your total income for the past year, and identify the lowest amount you received each month. Use that amount as your baseline, then plan your expenses around this figure. This will help ensure that you have enough money to cover your essential expenses.
Pay yourself a salary based on that minimum income amount, and save any excess income from months when you earn more. This strategy allows you to build a cushion for those lean months. Which brings us to our next important strategy for those who do not receive a paycheck with the same amount of money every months.
#3 Create An Emergency Fund
Set up an emergency fund. One way to ease the stress of having an irregular income is to establish an emergency fund.
Save up three to six months’ worth of essential expenses, such as rent, food, and utilities, to use in case of emergencies or income fluctuations.
To save towards that goal, automatically transfer a set amount into your savings account every month. Treat this like a bill that must be paid. Bonus money? Birthday gift? That all goes into the emergency savings account until you have at least three months of expenses saved up for an emergency.
Having an emergency fund provides peace of mind and can help you weather financial setbacks.
#4 Track Your Finances
Tracking your finances is crucial when budgeting with an irregular income. Keep track of every dollar and all sources of income, no matter how small. This will help you identify patterns and make necessary adjustments to your budget.
You may want to use a budgeting app. Using reliable budgeting apps such as Mint, You Need A Budget, or Empower can help you track your spending, set savings goals and monitor your progress.
You can also use apps that analyze your income and spending habits to generate a personalized budget.
Maintain a detailed record of expenses. Keep track of every dollar you spend, no matter how small or insignificant.
Recordkeeping will help you understand your spending habits, identify areas where you can trim expenses and ensure that you do not exceed your budget.
If apps aren’t your thing, try a spreadsheet. If even that is too techy for you, guess what, it’s fine. Write it down on paper. Do your best. Don’t be upset if you miss a day. Just more awareness of spending can create better financial habits.
#5 Create Additional Sources of Income
We know, people have probably suggested this to you already. It can definitely feel like an annoying idea when you are already exhausted from your current job and are barely fitting in some sort of workout routine and a glimmer of a social life.
Strong mental health is priceless. Do not take on additional work if you would burn yourself out and sacrifice your health.
However, do take a minute to think if there are ways to create additional sources of income.
Is it time to ask for a raise at your current job?
If not, perhaps you can get a little creative. Having varied income sources can help mitigate the risk of relying solely on one source of income.
Consider taking on part-time work, freelancing, or selling your skills online through sites such as Fiverr or Upwork. This will provide you with an additional source of income that you can incorporate into your budgeting plan.
Maybe you know someone who could use some temporary help with an event, kids, or pets. Do you have a hobby you could monetize?
While bringing in additional income, you could also develop your resume and chase your dream job. Do you have a goal of becoming a writer? Working in film? Perhaps you can pick up gigs in these areas, make some extra income, and start developing skills towards your dream career.
What To Do Now With an Irregular Income?
Budgeting with an irregular income can be challenging, but it’s not impossible. By following these tips, you can achieve financial stability, build savings, and have control over your finances. Create a realistic budget, track your expenses, save for emergencies, and develop alternative sources of income (if that is realistic).
The key is to be patient, consistent, and disciplined in your approach. With a little time and effort, you can successfully manage your finances and achieve your financial goals.
If all of this seems overwhelming, we don’t blame you.
How about you just start with one simple step?
What about writing down your monthly income and expenses?
Start there. Just get going and do a little at a time!
