If your income varies from month to month, here are some tips on how to build a budget that works for you.
An irregular income can make budgeting more difficult, because most traditional budgeting practices rely on making sure you’re spending doesn’t overtake your income. If you don’t have a set monthly income, what do you do? These steps will help you navigate the sea of irregular income.
1. Figure out what your baseline monthly expenses areHow much money do you need to cover your basic living expenses each month? That means the truly essential ones – ones you have to pay every month, no matter what. Common essential expenses include:
- Housing and utilities
- Loan payments
- Medical bills or insurance
2. Calculate the monthly average of your discretionary spending
These are things you spend money on but can live without. Look back at your previous bank statements to find out what you’re spending on average on these expenses monthly. Discretionary spending can include:
- Clothing, shoes, and accessories
- Holiday and birthday dinners and gifts
- Take-out meals and coffees
- Gym memberships
- Video games
Once you know how much you’re spending in this category, you can determine where it’s easy to make cuts in order to keep to your budget. Even slight adjustments can make a big difference!
3. Plan to save and build an emergency fund
When you have an irregular income, it’s even more important to prioritize building an emergency fund. An emergency fund is for big unexpected expenses, like if you get sick for a long time, lose your income, or you total your car. Ideally, this fund should cover six months’ worth of expenses, but not everyone can reach that goal realistically. Even if you can’t put a lot of money towards this, funding your savings as if it were a monthly bill is a great way to get started and will really show progress over time. Here are some tips on starting an emergency fund – even now.
4. Determine your average income
With an irregular income, the law of averages is your best friend. Some months are better than others. That’s why the best budgeting strategy is to live on your average monthly income. Simply determine your income for the year and divide by 12. Use this number as your “monthly” salary.