Today I’m terribly excited to be doing a blog swap with John from Frugal Rules. Don’t miss my post about being an advocate for your own health care over at his site, AND you still have time to enter the giveaway for $100.
Call me a nerd, but I love to budget! Budgeting can be an easy exercise when you know what your income is going to be from month to month. But, alas, not all people know what their paycheck will look like each time. This can be a common situation given the number of people in sales careers who depend heavily on commissions to make up the majority of their take-home pay. You could also be like me and be self-employed and have fluctuations in your monthly income. Either of these situations can make living by a budget difficult, but not impossible. So, please don’t allow the situation of irregular income be an excuse for you not to live with a budget. I’ve been able to live with a budget and not know what my monthly income will be for several years and with a few tips you can too.
Know What Your Expenses Are
The most vital thing to setting a budget with irregular income is to know your expenses. To be honest, it’s really an issue for anyone that wants to live with a budget, but for someone who doesn’t know what they’ll make next month this is of utmost importance. The easiest way to determine your expenses is to sit down with all of your bills and notate what each one is. You will then want to add in other expenses such as groceries or transportation costs. It is vital not to underestimate your expenses, especially for food costs as you don’t want to get to the end of the month and have no room in your budget for groceries.
Prioritize Your Expenses Within the Budget
Living with a budget requires discipline, one that can be felt more acutely for someone with irregular income. With that in mind, you need to prioritize your expenses. I am not talking about frivolous things here or your debts, but what it takes to keep your family going and the power on. Start out with groceries, mortgage/rent, utilities and transportation. These are the things that should be put out front and then you can deal with any debts like student loans or credit card debt. Now, some might rebuff and say this is ignoring your debt. Paying off debt is vital and I encourage it, but would you rather pay off your debt or have electricity? I know which I’d choose and setting the budget can help you see that.
What to do With Extra Money You Earn
Save it! Beyond that, look for other things that need to be taken care of but have been neglected. Being self-employed I love months where my wife and I bring in more than we need! The first thing I do is look at my budget to see what line items have been ignored or where not enough funds have been put towards. I see things like retirement, keeping a healthy Emergency Fund, Vacation Fund, entertainment, and really the list could go on. The key is to put a healthy chunk towards savings so that if you’re short the following month you have the cash to access to meet your minimum needs budget. This will allow you to smooth the rough edges that an irregular income can cause and keep you close to your budget.
Give Your Budget Time to Work
I will be the first to tell you that living with a budget and having irregular income can be an unholy matrimony. However, there is hope for the union. The key ingredient is discipline. That discipline can and does take time to develop. I know it did for us. Don’t give up after the first month. Give your budget a few months to work itself out, making minor adjustments as necessary. Once you set your budget, come back to it in a few months to see how you’re doing and if any changes are necessary. When you’re dealing with mainly fixed expenses, there’s likely little fluctuation to be had, but get in the practice of coming back to your budget on a regular interval to see how it might be improved.
Don’t let the excuse of unknown income keep you from having a budget. The difficulty and stress aside, it’s actually quite simple to budget with an irregular income. Do you have irregular income? What have you been able to use to help you live with a budget?
John is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting, and frugal living. John is a father, husband, and veteran of the financial services industry who’s passionate about helping people find freedom through frugality. Visit him at frugalrules.com. You can follow John on Twitter @FrugalRules.
Kim’s comments: With owning my own business I have often had irregular income, and have used that as an excuse not to budget, but I’m on the straight and narrow now.