How to Create a Budget for Irregular Income
Setting a budget is essential to everyone, but especially essential if your income fluctuates regularly. Adherence to your budget will help prevent overspending during better months while saving for leaner months.
Step one of creating a budget involves identifying all essential expenses such as housing, utilities, transportation and groceries. Next, create a list of non-essential expenditures you could eliminate to free up extra cash.
1. Track Your Expenses
Step one in budgeting irregular income is tracking expenses. Gather monthly bills, bank and credit card statements, paycheck stubs and benefits statements in order to gain a comprehensive view of where your money is going – this should include essential costs such as rent/mortgage payments, car payments and insurance premiums in addition to nondiscretionary expenses like streaming services membership fees entertainment costs or dining out.
Step two of budgeting requires breaking down essential and nonessential expenses into categories and determining their rough average costs. This will enable you to identify areas for potential reduction or elimination when expenses exceed expectations. An envelope system may help keep you accountable by designating one envelope per budget line (like groceries, entertainment or restaurants) with cash only used towards that category when money becomes available – this way keeping spending in line with values.
2. Set Aside Money for Taxes
No matter if you are self-employed, commission-earner or 1099 contractor; saving in an independent bank account such as Found is the most efficient way of setting aside money for taxes in case of lean months.
Make sure that when creating your monthly budget, tax bracket is considered. By planning ahead and taking into account potential lean times when setting spending goals, credit card debt won’t become an issue.
By tracking expenses and creating a zero-based budget, you can ensure that your income and spending don’t surpass each other. It may also help identify areas in which expenses could be cut back so as to save more for goals or emergency funds. It may initially seem challenging but with practice it will become easier; over time you will be living off your average income while feeling secure knowing you have your finances under control.
3. Keep Extra Cash in a Safe Place
If you rely on irregular income, having an emergency savings account is absolutely crucial to ensure you can weather unexpected hardship. Savings funds allow you to avoid going into credit card debt when work slows down or cover sudden expenses such as furnace repair costs; additionally they may make up for missed overtime hours due to irregular work hours or schedule issues.
Starting a savings plan requires physically separating your money between savings and spending accounts. This helps avoid unknowingly withdrawing from savings in low-income months while simultaneously watching funds grow over time.
An effective practice is ranking your expenses in order of importance, which will allow you to identify which expenses to cut when financial problems arise. A free budgeting app like EveryDollar makes this task simple or you could simply write out all the bills you must cover.
4. Set Goals
Budgeting irregular income can be challenging for freelancers, self-employed individuals and commission workers; but it is possible to create a budget and take control of your finances with careful planning – your spending shouldn’t fluctuate as rapidly with income fluctuations.
Start by identifying your essential spending needs, such as rent or car payments, utilities bills, insurance payments and debt payments. Next, establish a line item for discretionary spending such as dining out, adult kickball league fees or streaming services.
Tracking expenses all month is an effective way to hold yourself accountable and set savings goals and build a financial cushion of three to six months of core expenses. A monthly expenses tracker such as apps or online tools can assist in tracking spending habits. Also, setting savings goals will enable you to set financial savings goals and establish an emergency savings fund – essential if debt-related stress becomes an obstacle to reaching your dreams! For assistance with irregular income budgeting please reach out Focus Federal Credit Union today.
