Do you have irregular income? You do if your paycheck is never the same or not consistent. Learn how to create a budget when you have irregular income.
If you are one of those people who have a paycheck that fluctuates from week to week, creating a budget may be very difficult. If you happen to have various hours or are even paid based upon commissions, you know that your paycheck can swing from one extreme to the other week after week.
What tends to happen is that people will overspend on the months when they have more money. It is just human nature. You’ll have to be willing to change your way of thinking. In order to ever make any change in your life, you have to commit to it (even if it is something difficult).
No matter how you are paid, you still must have a budget. There is no getting around that. Having an irregular income does add another layer of complexity, but it is not impossible to manage. I’m here to help you do just that.
1. Start with a Spending Plan
This is a very simple tool you can use to look back at your income as well as your spending. It truly gives you a better picture of where you money goes.
For many, this is very eye opening. This sheet will help you see where you spend your money during every pay period. Make sure you account for every single penny. That way, you have a more accurate picture of what you are spending.
This really is the simplest way to see where you spend your money (no matter it is is regular or irregular). You can get the details on a Spending Plan here.
2. Estimate your income
This is where we will help you figure out the income to use on your budget.
- Salary + commission. If you are paid in this manner, base your monthly income only your base salary. Do not even look at your commission. Just consider commission “bonus pay” and when it comes into your household either use it pay off your debts or increase your emergency savings.
- Commission or hourly. If your hours vary greatly from week to week, or your commission swings on the pendulum, it can be tough to know how much your paycheck will be. Look over the past 12 months of income to figure out what your average monthly income will be.To do this, add up all of your paychecks and divide by the total number of paychecks (i.e. if paid bi-weekly, add your past 26 weeks’ income and then divide by 26 to get an average).
- Self-employed income. If you rely upon yourself for income, you need to consider a bit more than 6 months. Use a period of at least 12 – 18 month’s worth of income to determine the amount to add to your budget on a monthly basis.
3. Complete Your Budget
Now that you know where you spend your money, you need to fill out a budget. You will use your average income calculated above for the income portion. Then, refer to your spending plan to fill out the rest of the sheet so you can track your other spending and saving.
You can also check out budget apps and programs which might be a perfect fit for you.
4. Check the Budget each month
It is important that, at the end of each month, you sit back down and look at your budget. You will update the income portion of the budget with the amount you actually made. You will update all budgeted amounts with the amount you actually spent.
This now allows you to see how your money flowed through your household. If you see that your final total is NEGATIVE, it means you overspent and you really need to make adjustments in the future so that you do not end up making the same mistakes the following month.
However, if you find that you have money left over, then you have to be wise with what you do with it. Do not just go shopping. It would be wise to continue to hold onto that cash in savings, so that way, you have it during a lean month, when your income might drop below the amount you need to cover your basic expenses (perhaps due to your hours being cut during slow times).
Having an irregular income is not an excuse to not create or maintain a budget. You simply have to look at it a little bit differently.