Developing a budget with Irregular Income

For most people, a budget is the first step to winning in the area of personal finance. Developing a working budget isn’t as difficult as most would have you believe, and you don’t need any sophisticated software to develop a budget that will work for you and your family. John Maxwell says that a budget is nothing more than you telling your money where to go, before you wonder where it went. For people with an irregular income due to commission or being self-employed, developing a monthly budget can sometimes cause a lot of anxiety, but it shouldn’t. The process is the same as those with a regular income; you just have a few more questions that need to be answered. The only real requirement for putting together a budget is your estimated monthly income.

The first question that needs to be addressed is the amount of income you expect to receive. Let’s start with a worst case scenario. Because your monthly income is going to fluctuate, you will need to determine the amount that you will bring home during a bad month. If a bad month is $1500, then budget that amount on paper before the month begins. Here is where things will differ from those that have a set income each month. Let’s say you have a good month instead of a bad month. Instead of $1500, you actually bring home $2100; what will you do with the extra $600? What if you have a really good month and bring home $2700, or even $3000; how will you be a wise steward of those extra blessings? When working with an irregular income, your budgeting process is slightly different from everyone else. In addition to budgeting for a bad month, you also need to put together a list of items that will need to be paid if you bring home more than expected. For example, it would be nice to pay extra on debt, but if you only bring home enough to cover the necessities that is all you can do. If you do bring home more, now we can pay on those debts. Your list of items needs to be long enough to cover not just a good month, but a really good month. The idea is to make sure that no matter how much you bring home for the month, you have already spent it. This will help lessen the chance you will ‘impulse spend’ your money away.

When creating your list you will need to write down everything that isn’t already covered in your “bad month” budget. Make the list as exhaustive as you can, including a few things that will only be covered if you have a really good month. Once the list is complete, prioritize the list with the most important items at the top and the least important at the bottom. Re-write your list in priority order with the amount you will pay on each item. Now when the money comes in, you simply start at the top and start working your way down the list. When you run out of money, you stop. At the end of the month, draw a line above the things that did not get addressed. Depending on what is below the line, you may want to move some of these items up a little higher next month. One thing you will want to make sure to include is emergency savings to cover a really bad month when the income doesn’t allow you to cover your necessities.

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Tagged as: irregular income