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Budgeting with an irregular income

Budgeting with an irregular income

I’ve had an irregular income for many of my working years. (The expression “make hay while the sun shines” was pretty much my motto.) This was just the way things were in my world, so I was used to it. Because of this, I was forced to learn how to plan out my spending with an irregular income in mind.

Budgeting with an irregular income isn’t really much different from budgeting with a steady paycheck. The biggest difference is that it forces you to THINK about your money and priorities more proactively.

Many people approach budgeting like this: they think ok, I make $2000 a month, so that means I have $700 to spend on my rent, $300 on groceries, etc. When really a good way to approach it is to start with the basics and THEN figure out how much you have available to spend. This is because you need to spend your money on first things first.

What do you and your family really NEED, in order of importance? Probably food (but not eating out!), health care, and shelter, in that order. Next, decide what the other things are that you WANT. For me that list looks like this: retirement, travel/entertainment, transportation, telephone, other investing, grooming, giving, and clothing. That’s right, I’d rather be able to do fun things than put gas in my car. I’d rather be able to make investments than have a nice haircut, etc.

Once you’ve made these lists, break down the most important ones into their associated parts, and put a dollar amount to them. For example, “shelter” might include your house payment, your taxes, your homeowner’s insurance, your electric bill, and your water bill. It would not include things like cable TV or a phone. Prioritize your entire list, then take a step back.

What is the minimum amount that you need to earn each month to cover the basics? How much more would you need to cover the wants that are billed monthly? How much would you need to cover your entire list?

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Those are your three goal points. (You may find it helpful to draw lines at these points.)

Total up the three goal points for an entire year as well. Do you generally make at least that much in a year? If so, you’re probably in good shape. If not, you may have to get a J.O.B. that pays more regularly, cut some things from your list, earn still more income from a new source, or all of the above.

From this point out it’s a matter of paying things in order and (most importantly) exercising self-control. Look at your list every time you earn some money to remind yourself that even though you made $5000 this month, you need $3000 of that to cover the months you might only make $1000. I cut fun things in order to save up money to pay less-fun-but-more-regular things like the telephone bill. It’s also an excellent idea to track your actual spending, if you’re not doing that already. Finally, remember that a budget is a fluid thing. It’s going to change much more often than it remains the same, especially at first.

View Comments (5)
  • Good approach – I’ve recently started thinking in those terms. The JOB no longer exists and its time to start making an irregular income. Knowing what the minimums are is important and the best place to start. Good post. :)

  • This is pretty much the approach one must take to survive on an irregular income. Some people I know – sometimes even myself – name their priorities (often just rent and food, not even health care) and work like mad until they have those priorities covered. Then the take the rest of the month off, working short shifts for beer money or just enough to apease employers.

    Even when one has a regular salary, I think this would be a good way to think. After all, none of us is guaranteed a job tomorrow.

  • You’re so right about that Tread, but there are many people who live under the illusion that they’re always going to have a job tomorrow…

  • As someone who has worked on a freelance basis since 1995, I can relate to the problem of how to cope with irregular income. Luckily, my husband has a good job and regular income that meets our basic needs. And you’re right, it has been important to identify what are our basic needs. I think this is a challenge that requires maturity and an ability to filter out the advertising messages and the pressures to keep up with the Joneses. It’s really amazingly un-conventional! There are very, very few people in our culture who seem to understand this approach to life–don’t get me started!

    Even with a job, there’s tremendous insecurity in our economy and diminishing returns and benefits everywhere–definitely a squeeze! It has been a good idea for at least a decade now for individuals to think in terms of being free agents even when they have a job and regular income.

    I wish I was better at making more money, I certainly put in a lot of work! Maybe you could do a post or two about your experiences with that sometime…

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