One of the most common I get about budgeting is how to budget with an irregular income. Maybe you own a business, so your income goes up and down. Maybe your hours are constantly changing so your paycheck is never the same. If you're like my family, you get both!
My husband is a crane operator. He is on an hourly wage and also gets a lot of overtime
pay. If you are familiar with this type of work, his schedule is never the same. We never know until the prior evening when he is going to start work, and we never know how long the day is going to be. This means the number of hours he works is never the same, which means his paycheck is never the same.
I am a financial coach, and I own a business. My income changes each month depending on how many clients I meet with that month.
Honestly, budgeting with an irregular income like this is tough! It has to be done differently than a regular budget. It's easy to overspend on the slower months when we've become used to the income on the busy months. It has taken us years to perfect our budgeting skills, and we still stumble sometimes!
So, if you can relate, keep reading. Below, I will break down the steps to build a budget that works for your household and your irregular income.
At the beginning of the month, set up your budget for your expenses, not your income. With a regular income, I recommend a zero-based budget where your income minus your expenses equals zero. But this method doesn't work with an irregular income like yours. I still want you to allocate all of your income so every dollar has an assignment. Instead of allocating all of your income at the beginning of the month, you will be doing it throughout the month.
Before the start of the month, plan out all of your expenses. This should include everything from housing expenses, bills, groceries, gas, and any other potential spending. Next, add your income to cover those expenses.
Example: To cover your monthly expenses, you need at least $4000 per month. You
know that even with a slow month you will get paid at least $5000 per month. You can make your income $5000 in your budget and allocate it accordingly.
P.S. If you aren't using the EveryDollar budgeting app to make your budget, you are missing out! This app makes budgeting for irregular income so much easier.
Record your income as you receive it throughout the month. Keep track of each paycheck you receive as it hits your bank account. As you progress through the month, evaluate how close you are to your planned income. As your actual income approaches your planned income, you can estimate your planned amount as the month progresses you have a better idea of your total income for the month.
Allocate your extra income. If and when your income exceeds the planned amount, change the planned income and allocate it. Example: Your planned income is $5000, but with overtime pay, you have received $6000. You can change the planned income to $6000 and allocate the extra $1000.
Add in extra expenses you may need.
Add extra savings contributions.
Keep goals in mind when allocating the extra income.
Remember the budget is not concrete. It is fluid and flexible, especially when you have an irregular income. You will need to be constantly adjusting your budget and aware of your spending to stay on track.
PRO TIP: Build a "hills and valleys fund". This savings account is essential for an unpredictable or seasonal income. Save exta when your income is high so you can use it to supplement your income during the slow months. This will keep you from overspending and racking up debt when your income is low. |
If this is your first time budgeting, give yourself some grace. You won't get it right away. You will make mistakes. It might take you at least six months to get the hang of it and even longer to feel really confident about budgeting. And even then, you will stumble sometimes. DON'T GIVE UP!
Your budget is key to your financial success. If you need help, book a free Discovery Session to see how financial coaching may help you.
For more money tips, download the FREE Money Mastery Guide. You've got this!
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