It can be much easier to budget your income when you know exactly how much money you're going to bring home each pay period. What do you do if your paycheck isn't consistent?
Those that work for commission or tips or are self-employed may think that budgeting is impossible. It isn't though. Yes, it may take a bit more work, but you can make it work. Let's take a closer look at how to budget when you have an irregular income.
Track Your Expenses
It is so important to track your expenses and spending habits to determine when money goes out and where it goes each month. You want to do this for at least one month. This will give you a better idea of where and when your money really needs to be spent and when it needs to be saved. For example, if you notice that the third week of the month is a slow period, you know that you can put any extra money you make during that period towards bills in the fourth week.
Figure Out Your Average Income
If you know on average that you make a certain amount of money each month, try to budget first using the average. If your income varies wildly, then first budget with the amount you know you'll earn each month (like a base salary if you're commissioned) or the lowest you've earned in the last 12 months. Then list the rest of the bills you can't fit into your budget in order of priority so that when extra money comes in, you can pay the most important ones first.
Make Note of Bills You Have Trouble Paying
If you find that you're struggling with some of your bills each month, you can sit down and create a plan to help you get those paid. For example, let's say that your mortgage is due the first week of the month, but that's also a slow period at work. This will help you determine that you need to put money back from your fourth paycheck to help cover the expense. You may even need to put money aside from each pay period to handle large bills.
Pay the Important Expenses First
Before you even think about buying a new bottle of nail polish or a cute pair of shoes, you need to make sure your important expenses are covered for the month and that you have money in the bank for emergencies. You never know what can happen when you have irregular income. This means you want to plan ahead.
Make a list each month with the most important expenses first (like your housing, food, and transportation) and make sure those are paid first. Then list out the rest of the items you'd like to pay each month in order of priority. As money comes in, pay each item in order of priority to make sure you have enough for the important things each and every month. If your first paycheck of the month can cover your most important bills, use that to pay those bills. You can then use future paychecks to cover everything else.
An irregular income is so hard to work with. Yes, it can be freeing to be self-employed, but it can also be stressful. Learning how to properly budget your money to deal with it will make your life so much easier. Not only will your bills be paid on time, but you'll have a lot less stress in your life.
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