Budgeting when you have a regular, steady income is a pretty straight forward process, but if you work in an industry where your income fluctuates, or you’re self-employed like I am, budgeting might seem a little harder.
Luckily, there are several different ways you can budget if you have an irregular income. The key is figuring out which one works best for you and your family.
That said, here are a couple of different ways you can budget with an irregular income.
1. Use an Average Income
One way to budget with an irregular income is to take an average of the last 3-4 month’s incomes and use that figure to budget.
This is a great way to budget if you expect your income to continue to rise, because you’ll likely have extra income about the amount you use to create your monthly budget. But, if your income is truly flexible it might sound scary to budget off of an average. After all, an average is above what you have earned in some months.
If you have a month where you earn less than the average figure you used to budget, you’ll have to cut some discretionary expenses to make up the difference.
I’m not going to go into a lot of detail on this one because Chris explains more about budgeting with an average income here.
2. Build a Buffer and Live on Last Month’s Income
I actually decided to take a different approach to budgeting with my irregular income.
My plan is to operate off of a bare bones budget, or as bare as I can get it with the extra expenses I’ve had lately for medical care and car repairs, while I build up a buffer of extra income in my business account.
After a few months of building a buffer of extra income in my business account, I’ll be able to go back to my “regular” budget and I’ll be able to pay myself a set salary each week or every 2 weeks, similar to how I was paid at my full-time job. Basically, I’ll be an employee of my own business and getting a paycheck from myself 🙂
At this point I’ll be living on last month’s income so I’ll always be a month ahead. This will help me to know how much money I have to budget with every month for my zero based budget, and also to weather the storm if (ok, when) I have a slow month of self-employment income.
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What Gets Measured Gets Managed
The bottom line: if you’re not measuring the money, there is no way you will ever manage it.
Having an irregular income doesn’t mean you can’t or shouldn’t have a budget. Everyone needs a budget, and in my opinion those with irregular incomes need a budget even more so than those with steady, predictable income. The key to budgeting with an irregular income is to figure out what method works best for you, and then putting that tactic to use every single month.
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