Budgeting for irregular income

Irregular incomeWhen I posted about the 28-day budget, I received a comment on G+ about irregular income. A lot of people believe they can’t do a budget if their income fluctuates. Don’t get my wrong, it is much easier to budget when your income is the same every month, but for most people that is not the case. Even for us, our income changes every month because of my tax business. We each have a base salary, plus my irregular business income. So how do you budget for this?

There are two categories of folks who make an irregular income. First, there are folks who make enough each month to pay all their bills, but some months they make more money than others. Their minimum income will always cover their monthly budget. If you are in this boat, I would suggest budgeting with your minimum income. Spend the minimum income on paper, on purpose before the month begins. You should also have a list of goals for additional income. For example, we are on Dave Ramsey’s baby step 2 (paying off all debt except the mortgage). Any additional money we get goes toward our debt snowball. Your goals maybe different. You might be saving your emergency fund, paying down your house, saving for a vacation or new car. Whatever your goal is, put the additional funds toward that goal.

The second type of irregular income is when you can’t pay all your bills some months because your income fluctuates so much. This happens for folks who work commission based or tip based jobs. We also see this alot for small business owners and seasonal workers. These huge swings in income can be very hard to deal with and can get people into a lot of trouble budget wise. There are a number of things you can do to help deal with these shortages.

In the short-term, make a prioritized budget. List all of your expenses each month then put them in order of most important to least important. How do you decide what is most important? Well the first thing to cover is basic needs: food, utilities and housing, transportation (including car payments if you have them) and clothing. Once you have covered those things, then you can prioritize your remaining items.

If you can cover everything in your budget, including minimum debt payments, but you know there are months you might not be able to cover everything in your budget, it’s time to start squirreling. You need to set some money aside, outside your emergency fund to cover those lean months so you can always cover your budget. For example, if you work a job where income is low during the winter (December-February) and your budget will be $1,000 short for each of those three months, you should try to save up a squirrel fund of $3,000 before December 1. Once your income comes back up in March, you should build up that fund again before moving on with your other goals. This squirrel fund will help you get through the lean months without getting behind on your payments.

Budgeting for irregular income is very possible. It takes a little more work, but is so important when trying to reach your goals. Having a written plan will help you achieve your goals faster. If you have any questions, leave a comment below or email me at kristin@klingtocash.com.



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