Irregular Income Budgeting Made Easy

Budgeting with Irregular Income

Trying to budget with inconsistent or irregular income can be tricky sometimes. There’s a lot of entrepreneurs or service based jobs that don’t provide that consistent 2-week paycheck.

If you don’t know what your income will be each month, the below formula can seem difficult:
Income – Expenses = Difference

SInce we don’t know what our income will be, ‘Income’ becomes our variable in the formula:
X (Income) – Expenses = Difference

Since every dollar you earn should be accounted for somehow, the ‘Difference’ should be equal to zero. So our formula would be:

X – Expenses = 0

We need to know what our expenses are, which is where a budget comes in very handy.

Create a Spending Plan

Set up your spending plan (aka budget), basing your income on your lowest income month from last year. If you weren’t in business last year, that’s alright, make the best guess possible.

List all of your monthly expenses with the dollar amount next to them. Include your phone bill, mortgage payment, utilities, medical bills, car insurance, eating out, auto payment, etc.

Once you have all of your expenses listed, reorder them to start with the most important expense to the least important. Groceries and mortgage to eating out and birthday gifts, just list them highest priority to lowest priority. Don’t forget to add in specific line items on how much for investing or paying off debt.

Know Your Expenses

Look over your expenses and decide which are necessary. (Food, shelter, insurance, etc.) They should be your highest priority items. Highlight those items on your budget. These are the items we will need to pay for each month.

Please do not highlight Netflix. I know peeps love binge watching Netflix, but really, it’s not a necessity. Go to the library and read an engaging book instead. 🙂

Total up the highlighted expenses. This is your absolute minimum expense amount, the necessities.

Total up all the expenses, this is the amount you’ll need to cover it all.

Let’s say for example our monthly necessary expenses are $2,000. Go back to the formula and plug in your expense number:

X – $2,000 = 0

Doing a little math, we know our income would need to be $2,000 for the month to breakeven for necessities.

Evening Out the Irregular Income

Now that we know our expenses and have a budget set up, we need to plan for any extra income or for when we don’t make enough to cover our basic expenses.

When you get paid, apply that money toward those top priority expenses and then keep moving down the list. If you don’t make it to the end of the expense list, you’ll know where to pick up when you get paid again within the same month.

Keep track of what you have paid each month so you can see where you were short one month and when you have an increase in income in another month, you can put that toward where you short last month.

Make sure to allocate any extra money to your emergency fund, your savings or your investing so it has a place to go. Especially if you’re not sure you’ll be making enough each month to pay for your expenses. You’ll want to roll some of the extra income into a savings for next month in case you make less than your expenses the following month.

If you don’t expect to earn enough to cover your expenses each month, take a look at where you can cut back on your expenses or how you could increase your income. Living above our means is no way to live.

If you want to set up automatic withdrawals into your IRA (or another account), make sure to account for that as an expense line item in your budget, as I mentioned above.

If you don’t think you’ll make enough each month to cover that auto withdrawal then set up a separate account to deposit that money into. This way when you make more one month than another, you’ll still have enough in the account because you’ll have put the extra amount in the account when you had a higher income for one month.

Another great way to help with this is to always put a certain percentage of your income into a certain account rather than a dollar amount.

For example, if you wanted to contribute at least $400 a month into your investment account and one month you made $3500 and the next month you made $2000.

You could pull out a standard percentage of 15%. The month you made $3,500 you would deposit $525. The month you made $2,000, you would deposit $300. On average, you’d be able to still auto transfer $400 per month.

The secret is to be sure to account for where all of your money is going so you don’t fall behind or forget to pay a bill or forget to contribute to your investments because that is where the wealth building comes in.

Do you have inconsistent or irregular income? What has worked for you?

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