Setting up a budget can be frustrating and challenging for people who earn fluctuating incomes. This holds true especially for self-employed, freelancers, and many others who work on straight commissions. Having an irregular income gives you the tendency to overspend on the good months, which leaves no more money for the lean months. Although your unpredictable income makes it difficult for you to stick to a planned budget, it is highly recommended to be as close to your budget plan as much as possible so that your finances won’t get out of control.
Here are tips on how to survive on an irregular income:
Set up a standard budget. Estimate and project your income based on your lowest-paid monthly earnings from last year. Using minimum income as a basis instead of average income will ensure that you have a safety buffer during your lean months.
Prioritize your expenses. While working on a limited budget, list your monthly expenses according to priority needs and work from the top to the bottom. Of course, first is food on your list, then utilities, mortgage or rent, and transportation. Then your credit cards and your other loans.
Set up and maintain 2 different bank accounts, one for personal and another for business use in managing your money. Use an account with a higher yield or high-interest rate for your business. Use your personal account to pay for personal expenses such as bills. The income that you earn every month goes to your business account. You not only accumulate cash in this account but also earn a higher interest.
From your business account, pay yourself each month as if you are paying an employee. Your “salary” will be the income you have projected in your budget. From your salary, you can deposit this to your personal account and this is where you pay your bills.
You can use your business account in paying taxes. Due to the nature of your job, always account for it as nobody else is withholding your tax.
Work your way backward in coming up with a budget. Since your income is unstable, make your expenses predictable and stable. Determine the amount of money that you should spend each month and this must be cover your essential expenditures such as food and groceries, utilities, mortgage, medical insurance, and gas or transport expenses.
Adopt a frugal lifestyle by finding ways in using cheaper alternatives such as a cheaper cable plan, a phone subscription, etc. Let me be clear, being frugal doesn’t mean being cheap, you are just wiser and are finding the best alternatives.
If your income can afford a third bank account, then set up one for emergency savings such as unexpected loss of job, sickness, death in the family, accidents, etc.
If you are married or have a partner, plan the budget together. Try to live on just one source of income. If one of you has a regular paycheck, talk it out and use this to pay for the basic needs, while your irregular income should go to savings and taxes.
The bottom line is that having a realistic budget makes it easier for you to manage your finances even if you live on an irregular income. Give some time such as 6 to 12 months for your budget to be working correctly and accurately. Adjustments can be made from time to time, but try your best to stick to your budget as closely as possible. The goal here is to stretch out your earnings and make sure that you have enough money to spend every month.