How to Budget with Inconsistent Income
Most advice on budgeting makes the assumption that you’re working with a set amount of income each month. But what if you’re not? People who are self-employed, freelancers, artists, or whose income relies heavily on tips and commission are all subject to inconsistent income that fluctuates from month-to-month.
If you fall into any of those categories, should you just forget budgeting, cross your fingers and hope for the best? Absolutely not! In fact, because your income is unpredictable, it’s that much more important to understand how much you need to make each month and how best to handle those times you might fall short, as well as what to do when you come into a financial windfall.
Establish Your Baseline
When your income is inconsistent, it’s vitally important to establish what your monthly expenses are. Remember to account for housing, food, transportation, insurance, utilities and any regular monthly bills you have. Knowing the absolute minimum income target you have to hit each month is the place to start. Our Household Living Expenses Calculator can help you break it down.
Look for Ways to Cut Expenses
Once you determine your monthly expenses, look for ways to lower them, or even eliminate certain ones altogether. Is the cost of a car payment, plus the insurance, gas and maintenance taking up too much of your income? Look into using public transportation or ride sharing. Are you spending more than you’d like to on utilities? Find ways to cut your consumption, or ask your provider if they offer an equalizer plan that averages your costs over a year so your bill is the same each month, rather than spiking seasonally. Be creative and turn cost-cutting into a game.
Account for Variable & Periodic Expenses
It should be relatively easy to nail down your monthly expenses. But don’t forget to plan for those expenses that only come around occasionally or even just once a year. They can really throw things off if you’re not ready for them. Remember to account for things like annual vehicle registration, back-to-school expenses, and buying gifts for birthdays and holidays.
Start Saving for Emergencies
While it’s important for everyone to set money aside for emergency expenses, it’s even more vital to do so when your income is irregular. You may need to dip into it more often just to pay your regular bills in case your income falls short.
Use Extra Money Wisely
You’re going to have some great months where you make much more than you expected. It will be tempting to splash out and treat yourself, but it’s a better idea to set that money aside to help you through the lean times.
Need more help establishing a budget with inconsistent income? Our free credit counseling can help.