It can be difficult to know how to budget with an irregular income. Budgeting with a variable income is a problem that many people have, and I don’t think it’s covered adequately in most personal finance books. The headache that comes with trying to budget when you don’t know what your monthly income is going to be is the single biggest reason I’ve failed at keeping a budget over the years.
My husband has worked in various commissioned sales positions for most of our 12 years of marriage, so I’m not new to dealing with irregular income. Freelancers and those who are paid by the hour also have income that can vary widely from month to month.
One of the biggest downfalls of having a variable income is the tendency to overspend on good months. Believe me, I understand. Your money is stretched to the limits in the lean months, so on a good month, you’re tempted to spend a little bit more on fun stuff. But when the next lean month comes, there’s no extra money left to help ride it out.
Keeping a budget is the best way to even out the highs and lows of a variable income. Though it’s true that budgeting is more complicated when you don’t have a steady income, it is possible to make and keep a good budget. And I’m going to show you how.
Previously, I showed you the steps to creating a budget. You are going to follow the same steps, so you might want to review that post. I’m also going to add a few steps.
Now that you’ve estimated your monthly income, use that number to budget. Follow the steps in my post How To Make a Budget That Works, until you have a good budget.
Be sure to fight the temptation to adjust your monthly income upward, because you’re having trouble making the budget work. That’s setting yourself up for failure. Keep cutting expenses until the numbers work.
What you are doing is giving yourself a regular salary. On months that you make more than your “salary”, you will be leaving the extra money in the savings account. On months where you make less, you will use the extra money from the good months to cover the difference.
At the end of the year, if you have a lot of extra money in your savings, you can give yourself a small raise for the next year. If you’re consistently finding that you don’t have enough money in your savings account, you may have to give yourself a pay cut.
This method can take six months to a year to start really working correctly. You will have to make adjustments, but stick with it as best as you can. Eventually your budget will work the way it’s supposed to, and you can say goodbye to the roller coaster that comes with a variable income.
Don’t miss the other posts in this series!
Have you successfully used a budget with a variable income? How did you do it?
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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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