Let’s be real here, a lot of people don’t have perfectly consistent income. It’s not that you don’t want to have consistent income. It’s just that your career gives you lovely irregular income. Hey, it’s not a bad thing! (you’re at least making income right?) But, I’m gonna tell you a little secret … It’s still totally possible to budget with irregular income. I’m here to show you the easy peasy way to make a spending plan (budget) so you can be just like the rest of us suckers …. I mean just like all the other people who have a monthly spending plan and are prepared.
First, I feel like I need to get something out of the way. If you’re confused, a spending plan is basically a budget. I feel that it sounds a lot less stuffy than a budget so I changed it. (also, people tend to cringe at the word budget)
You’re probably thinking right now, “But Kenz, there is literally no way that I can budget with irregular income. It’s impossible. I don’t need to have a stupid spending plan anyway.” Gasp! Oh you need it more than anyone … Let’s go over some of the basics so I can change your thinking of the “stupid spending plan”.
I get it. Making a living is tough. Having to deal with your money problems is tough. I’m here to make it less tough.
Think about your money. Where is your money going? How much money are you actually making? Are you saving money? Are you paying down debt?
Guys. This is so freaking important if you want to take control of your money. Don’t you have goals for your life? Don’t you want to travel the world? Wouldn’t you like to not feel guilty about spending money to get a massage? How great would it be to pay for your kids’ college so they don’t have to take out any loans? I tell you what …. there’s no reason why you can have all that. You can go on a romantic getaway to Bora Bora. Or, totally eat at that fancy new restaurant without thinking you’ll have to skip paying your electric bill. Maybe you’ll take your kids on more than 1 trip to Disneyland (because that’s all you were ever able to afford.)
You can do all of this, and whatever else you want, without feeling the guilt. Without wondering if it will ever get better. Without thinking “Life just isn’t fair for me.”
Okay, okay … Stop daydreaming. (ugh … but I want to go to Bora Bora now …) How do you achieve all that I mentioned above, plus more? You start with the basics. You need a foundation. That foundation is your spending plan. I don’t care if you have inconsistent income or not, it is totally doable and if you want all those things then you’ve got to start here.
let’s get to it … (if you’d like the free mini course and workbook that goes along with creating your families spending plan you can get that here.)
We’re just going to get straight to the income part of this spending plan. When creating your spending plan on an irregular income you want to find out what your lowest income month was. You don’t have to go way, way back, within the last year or year and a half would be fine.
This number is going to be the base for your spending plan. This is what you are going to plan on every month (unless you start getting more consistent income).
After you have your lowest income month, you’re going to split that money up into the necessary bills you have. So home, mortgage, insurance, car, groceries … etc. Do not worry about extra stuff that you can live without. This is just the bare necessities. Make sure to include any debt payments you have. Try to at least pay the minimum amount if you can (meaning, try not to skip payments.)
With the money you have leftover from the necessities, you’re going to divvy it out between the extras. So this is your Netflix, Starbucks, eating out, entertainment etc … Basically, anything you can live without.
What if I have more money after that?
You shouldn’t go totally overboard and spend thousands in entertainment just because you have money left to fit into your budget. Your next places to put it are any debt payments you have and your savings. I find the snowball method the easiest, and fastest way to pay off your debt. So if you have some extra cash put some of it (about half) towards the smallest debt you have. Then when you have the smallest debt paid off you move to the next smallest and so on. (hence the snowball method!)
Since you put half of the money leftover to your debt, you’re going to put the rest into a savings. Which I’ll cover more below.
The number 1 most important thing if you seriously want to have a successful budget with irregular income
This is so important. This is going to be your lifesaver and you need it more than ever if you have irregular income. I can’t stress this enough …. You have got to have an emergency fund! (okay the buildup maybe was a little too much, it’s not that exciting). But in all seriousness here, if you don’t have an emergency fund you’re just playing with luck.
If something ever happens to your income for one month, or it drops considerably low to where you can’t pay for everything, you need a backup plan. This is your backup plan. You know how I said to put extra money you have left over in your spending plan towards your debt? If you don’t have an emergency fund yet, then scratch that. Put every last penny into that emergency fund so you can be safe even on a rainy day.
You should start with at least 1,000 dollars in your emergency fund. From there you can go back to paying half of the money left over to debt and the other half to build it up to 3 to 6 months of your expenses. Oh, and remember to only use your emergency fund in an actual emergency. Starbucks is not an emergency 🙂
I hope you get how serious it is to have an emergency fund. It could be the single most important thing you do. You could totally skip creating a spending plan and just build your emergency fund and I wouldn’t even care (and that was really hard for me to say).
Now you know that it’s completely possible to create a spending plan/ budget with irregular income. You are one step closer to going on that trip to Bora Bora.
But wait ….
I can see you stressing because you’re afraid you’re going to create your spending plan and realize that you don’t have enough money to cover your expenses. Now, that’s a problem isn’t it? That Bora Bora trip is going to be ripped from your dreams if you don’t find a way to 1. reduce your expenses (the easy way) or 2. increase your income (I would argue that this is equally as easy).
1. If you’re living above your means, then you’ve got a problem. You’ve got to fix this problem before you even worry about earning some extra cash. Just by changing your mindset and behavior can save you hundreds a month (and get you closer to Bora Bora …) If you want to get serious and find out what to do if you’re living above your means then check out this post.
2. There are lots and lots of ways to increase your income or just get a little extra cash to pay off your debt. If you don’t believe me than I guess you’ll just have to miss out on that oh so exciting, non guilty, trip to Bora Bora. Like I said above, if you do have a spending problem you need to get that taken care of first. Because that problem will continue even if you increase your income. Most people who are overspending just get worse if their income increases (because if their income increases they think they have to up their lifestyle and the cycle of overspending continues). Get that taken care of first and you can be on to step two.
If you’re serious about upping your income then this is for you. It’s a money making guide by Ramit Sethi who teaches you ways to increase your income in the job you’re in, or just make some extra cash on the side. If you find you don’t have enough money to cover bills with an irregular income, then his guide is sure to help you find that extra cash.
Just for a quick recap, we learned:
- that it is totally possible to budget an irregular income
- how to set up your spending plan
- what actually makes your spending plan effective
- and what to do if you’re short on cash
P.S. If you’re still a little confused about what all we talked about – or you just want your hands on a helpful guide – make sure to grab the Create your Spending Plan Kit (still free) so we can walk through creating your families budget and help you take control of your life and money.
When are you going to start taking control of your money?