How to Budget Your Finances on an Irregular Income

March 21, 2019

Living on an irregular income can be quite a stressful experience. You never know what next month will bring and you can be left financially exposed by an emergency at a moment’s notice. It is a reality that some freelancers, seasonal workers, salespeople, contractors, or those who are self-employed or working on a commission can sometimes face. 

In some months of the year, they do exceptionally well, while in others their income can be close to nothing. And while for some, this can be somewhat predictable, others may never know which months will bring them the big bucks and which will lead them to fall flat on their face. 

All of this makes it hard to create and stick to a budget. Fortunately, however, there are specific steps that can help navigate these uncertain waters and be prepared, regardless of the circumstances. 

The Baseline

Before you begin creating a budget, you need to know your baseline. It includes the minimum which will cover your monthly needs and expenses such as mortgage, bills, transportation, food, gas, debt-repayments, and childcare. List all the costs that occur month after month.

Do, however, keep in mind that some of these expenses, such as your utility bills, for instance, can fluctuate. You also need to include your monthly savings as part of your baseline because they play a crucial role.  

Prioritize Your Other Expenses

Once you have your baseline, it’s time to plan your other expenses. These should classify in priority order, based on your needs and how much disposable income you have available.

Create a list of expenses from the most to least important and attach it to your baseline. So, in any given month, you should cover everything you need to pay your bills and survive (the benchmark), then, one after the other, you have your other expenses from the most to least essential. 

Don’t Forget To Save!

Putting money aside is essential to budgeting on an irregular income. No matter the circumstances, you should always make room for a portion of your income to go into your savings. You shouldn’t look at these savings as an emergency fund, but rather as a cash cushion.

It should account for at least several months of baseline expenses so that you can cover yourself when business is slow. The emergency fund, however, is something you don’t touch until there’s a real emergency. 

Living on Last Month’s Income

Now that you have everything set up, you need to make sure that nothing will catch you by surprise, so you don’t have to dip into your savings. You need to make a habit of living off your last month’s income.

So, every time it’s the first of the month, you can budget your new income accordingly, and you can always stay ahead of your finances. You’ll also be basing your calculations on real figures, and not on what you expect to earn on that particular month. 

Budgeting on an irregular income is more critical than on a regular income and is not as tricky as many assume. By following these steps here, you will be sure not to be left financially exposed during the months that you will not earn as much.

At Illinois Lending Corp., we strive to help the community by providing them with tips for better financial planning. If you ever find yourself in need of a quick loan, we are at your service. Give us a call at 1.877.LOAN.195 or apply online today!