Budgeting is hard for almost everyone. A 2013 Gallup poll found that nearly one in three Americans prepare a detailed budget each month, and only thirty percent of Americans prepare a long-term financial plan. The majority of Americans don’t have a budget or long-term financial goals written down. Those who do have a monthly budget may not always stick to it. Budgeting when you have an inconsistent income can be harder in many ways, because you might not know when money will come in, or the amount might vary week-by-week, month-by-month, or even each year.
However, there are ways to budget, even with an inconsistent income. Even if your budget isn’t perfect or always right, you are still better off keeping one each month, because it may help you reach long-term savings goals, and stay on track with necessary expenses (which becomes even more important when your income regularly changes.)
1. Figure out how much money you need
Before you can set a budget, you need to determine how much you actually need each month. A Monthly Budget Worksheet can help — like this one from Freddie Mac. Use that type of sheet for a few months so that you can determine just how much money you require each month in order to pay your bills. Even if your income changes each month, it will help to know how much you regularly spend, and what your bills add up to. If your pay changes every week or month, you don’t need to worry about entering your monthly pay just yet. The purpose of this step is to determine how much you spend, how much your bills are, and if you can cut back on any expenses in order to have enough money each month.
2. Determine the details
Regardless of whether you are a waitress, a contractor, work on commission, or you have some other job that brings in inconsistent income, it is still important to budget. If your spouse has a more consistent income, you might need to agree to pay your most pressing bills with that income. A consistent income will help you to set money aside for monthly bills. Then you can use your own income to pay down debt, save for retirement and emergencies, and possibly have money for trips or entertainment. The most immediate thing you will need to worry about will probably be your regular bills (and for the months that you don’t have enough money, you should order your budget by importance.)
If neither of you have a consistent income or you are single, then you will need to budget differently. You still should pay attention to the amount you need each month, which you will learn from filling out the budget sheet. You need to be aware of the details of your particular financial situation if you are going to budget. It’s a good idea to even consider when you are most likely to get paid the most (if it is consistently at the same time each year, during specific projects, etc.), when you have extra bills (like school supplies), and so on. Knowing the details will help you prepare to make the budget.
3. Live within your means
This is possibly the trickiest part of budgeting when you have an inconsistent income. You will always need to prioritize your bills, as well as your debt, but some months you may have to have less fun than other months. This means that if you have extra money one month, and you can afford to go out to dinner with friends, but another month you can barely afford the groceries, you will have to accept this fact. The point of coming up with a budget is hopefully to avoid situations like this, but even if you plan carefully with an irregular budget, some months you might have even less than you expect. It’s a good practice to cut down on expenses wherever possible anyway, but especially if you have an inconsistent budget.
It’s important to note that having an inconsistent budget doesn’t necessarily mean you are always strapped for cash. Many people make more money during particular times of the year (for example, wedding season for photographers.) You may even bring a total yearly take home pay that is far higher than most Americans, and you might have a great job that allows you a lot of financial freedom. Still, you will need to know how much your expenses are each month for those months when you don’t make as much.
4. Save your money
One advantage to having an inconsistent income is that there may be particular projects or times of the year that you make a lot of extra money. If you receive an unexpected bonus or extra money, you should be using that money to make sure that your debt is low and that you have enough saved for your future. If you receive a bonus at the same time each year, but it changes, you can pencil it into your budget as expected income. However, unless the bonus is always the same, you can’t completely depend on that money. You have to think of it more as a way to beef up your retirement savings or emergency fund, rather than a way to definitely pay bills. The same is true if you have more work during particular parts of the year, because you just don’t know when a less profitable year might come around.
At the same time, it’s important not to dip into your savings in order to make it through a month where you make less. This is another reason that a regular budget is so important.
5. Set the budget
If you’ve had an inconsistent income for many years, hopefully you are now at the point that you can at least predict roughly how much you will make over the year. This won’t help you when you are trying to pay bills during a tough month, but it will help you to know where your overall budgeting goals should be. Once you know exactly how much you need each month, you have to figure out how to pay for those bills. Obviously, you need to pay your bills each month, so your best bet is to save extra money during the months that you have leftover money after all of your expenses. So if you pay all your bills and you have leftover money, put it towards the next month’s bills. The point of the budget is to make sure that you don’t spend more than you should, and that you can pay all of your bills, so as long as you are doing this, you will be succeeding. Once you accomplish this, you can work on long-term savings goals.
It isn’t easy to live on an inconsistent income, and getting used to it might take time, but having a budget will help. A good tip is to consider having one bank account for your savings, another for your monthly bills, and possibly a third for extras. That way you will be able to prioritize your necessary bills, and also keep track of your savings. Although you won’t be able to incorporate the same monthly income the way that many people do, your budget is still an important step. You just will have to be more careful to save for months that your income is less.