When Your Income is IRREGULAR…

Having a budget is essential to your financial life. Sure it takes some practice and you may need to make adjustments until you get it right, but eventually you will. Now if your income is fixed, then the job is a bit easier because you KNOW what’s going to be coming in month to month as long as you keep your job.  But how do you handle a budget if your income is UNPREDICTABLE and IRREGULAR?  Should you STILL try to budget your income when you don’t know what you’ll make next month?  Absolutely.

What you do, when you have irregular income, is you find out how much you need minimally in a given month.  Let’s say that $1800 per month covers your rent, utilities, gas, food, coffee, entertainment, and all your other expenses.  Now let’s say that you’re irregular income changes based on the amount of work you did in the month or the sales that you do in a month.  Your income could be anywhere between $2000 and $3000 for the month.

The trick to budgeting on an irregular income is to DEFINE a threshold that you do budgeting with.  Let’s suppose in this example that you’ve been doing this sales job for awhile and you’ve never made below $2100 in a month.  So you can assume that if you have a bad month… that you’ll at least get the $2100 as a minimum.

With your threshold set..  You can do a budget just like a person with a FIXED income and you list the $2100 and you spend it on paper.

Now if you make MORE than $2100 in this example… which is LIKELY because you have an irregular income, some nice things can happen.  You should compile a LIST of financial goals that you want to achieve using the amounts you get in EXCESS of the $2100 that you budget with.  Lets say that you wrote down the following goals:

1) Put $1000 in a savings account

2) Buy a big screen TV

3) Take your spouse on a cruise

4) Pay off the car

When you have a GOOD month (or anything over the $2100).  You can put the extra towards one of these goals.  Each GOOD month you have…put it towards the SAME goal until that goal is complete.  Don’t start a new goal until you finish one.  The key is to FOCUS on one thing at a time.  So conceivably, you can have the $1000 in a savings account goal completed in 2-3 GOOD months.  Each time you finish a goal…talk over the next goal with your spouse, then work towards that one.

With a system like this in place… you can budget your expenses and spend on paper,  AND you can treat the excess income as a WINDFALL and use it to work towards some serious goals.

Now if you’re not able to count on at least your minimum expenses being paid each month.. then you may have to take 1 or 2 of those GOOD months and place some padding in your budget by having money set aside.  You may even need to increase your income (with a 2nd job) if it is not sustainable.

Does this help or do you have a problem with this?
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