An irregular income presents unique challenges when it comes to budgeting. However, it doesn't make budgeting impossible. When done correctly, developing a reasonable budget for your irregular income can help you eliminate debt-related stress, live within your financial means, and save for those rainy days. Use the information below to create a budget that can prepare you for the future and help you achieve your financial dreams, whether they be large or small.
Understanding Your Income
When you have irregular income, it's more important than ever to understand the ebbs and flows of how your income operates. This includes understanding the economic seasons and how they relate to the peaks and valleys of your income. When business is peaking, your income is most likely at its highest. However, it also means you need to understand and handle times when your income reaches its low point during an economic valley.
For example, roofing contractors often experience a significant boom in business during the warmer months of late spring, summer, and early autumn. However, winter work may be limited to emergency patchwork when the weather permits. You have another unique challenge to overcome in that you can't work on rainy days either. So, you need to take the seasonality of your business into account when budgeting so you have enough money to cover primary expenses during the slow season.
The same philosophy holds true in many other industries as well, including:
- Commission based retail
- Lawn care service providers
- Snow removal businesses
- Tourism-related businesses
- Freelance contractors
- House painters, particular exterior painters
- Substitute teachers
Whether your work is seasonal in nature or you have unreliable hours, it's still vital to establish a budget and live within it.
Calculating Required Spending
Your first step is to understand your necessary monthly expenses. For this, it helps to use budget payment plans for utilities. Under these plans, you will pay a consistent amount each month. You might pay more than your seasonal use calls for some months, but having a consistent cash flow will make it easier for you to manage your expenses each month.
The key is that you need to know exactly how much money you must spend each month on essentials that include:
- Utilities (water, electric, gas, sewer, etc.)
- Maintenance medications
- Car payments and maintenance
- Gas for vehicles
These are the essentials that you and your family require for economic survival. Once you know this amount, you have the first set of building blocks for a workable budget.
Calculate Discretionary Spending
The second part of the calculation is to understand your discretionary spending each month. These are the luxuries in life that are not essential, though you may believe they are necessary.
The thing to remember about these expenses is that unless they relate to your income somehow (as in you may need a phone or access to the Internet for your work), you can live without them for a month or two if necessary. They include the following:
- Dining out
- Coffee and/or adult beverages
- Non-essential groceries
- Gym memberships
- Sports subscriptions
Sometimes, it's eye-opening to see just how much you spend each month on discretionary items. Identifying these purchases can help you see areas where you can make changes to your budget that can net huge savings – especially during leaner months.
While you don't want to eliminate all discretionary spending, you can set limits so there's money left over for luxuries even in the leaner months.
The Importance of Saving
Saving is critical for people who have irregular incomes. This is what allows you to get through the leaner months, so you don't have to worry about how you'll make your house payment or feed your family. If you're currently struggling, the first place to look for savings opportunities is in your discretionary spending.
Cutting the cord with the cable company can easily save you $100 a month depending on your current package. Instead, you can borrow DVDs from the library to entertain yourself and may never miss your cable service.
Further cuts to your budget may involve switching from mobile phone contract plans to monthly prepaid services and overcoming the urge to upgrade every time a shiny new phone hits the market.
Budgeting is critical when you're working with an irregular income. It can help you avoid drowning in credit card debt while helping you achieve your short and long-term financial goals.