This is the case with most self-employed people and those who earn on a commission basis. According to Forbes, having a budget is especially important for people with inconsistent incomes. While having an inconsistent income is a legitimate challenge to budgeting, it only means that you have to rethink your budgeting not ignore it totally. If you have an irregular income, the two steps below will guide you on how to build a budget that will work for you.
Create a Baseline
What are your absolute lower limits for your income and expenses? What is the least amount you can earn in a month? What is the least amount of money you must spend in a month to survive? For your minimum income, you can base it on the least amount you earned the previous year and if that does not apply to you, calculate a rough estimate of the least amount that will come to you in one month. Looking at what you can save money on is a good place to start.
For your expenses, you would need to calculate just the things essential to your survival which would be food, housing, transport, utilities and clothing. You should also add all the amounts you have to pay monthly on the debts you owe as well your taxes, savings and investments to the list. All your expenses should be listed in order of importance with the most crucial coming first. All these things make up what is known as a bare-bones budget.
Assess Other Income
Once you have your bare-bones budget, you can create another section in your budget that will cover any income that you may get outside the bare-bones income. List the other things you would spend on if you were to have some extra income. Remember to list them according to importance.
These are the two main things you need to do when building a budget with an inconsistent income. Your budget will include the bare-bones part and the extras part.
When you do get paid, start spending following what you have budgeted for- working your way from the top where the most important things are. It goes without saying that you should start with the bare-bones part of your budget.
It is possible that the money that comes in may not cover all the expenses in your budget. There is no problem with that- pay all that you can with the money at hand and when you get some more, continue working your way down the budget.
Living this frugal lifestyle for an extended period of time might be rough. Giving up life’s luxuries is something none of us want have to face up to, but in the long term you’ll find yourself in a stronger financial position.