July 12, 2020 2 min to read
How to budget effectively when your income is inconsistent
Category : Finance
If you have ever considered creating a budget, you know that one of the building blocks of a budget is knowing your income.
So, what if your income is inconsistent? For the more than 21 million American workers with variable income, creating a budget can be confusing when it comes to figuring income.
Individuals who work on commission, on a contract basis, or who are self-employed often experience sporadic fluctuations in their income, as opposed to the steady and consistent earnings for salaried workers.
Having irregular income does not limit you from being able to budget. Aside from exploring various debt relief options to help you pay down any bad debts that are holding you back, creating a budget that you can stick to is important to your financial health and can be instrumental in reaching financial goals.
Here are a few tricks to help you budget effectively despite having an inconsistent income.
1. Calculate Your Basic Budget
Knowing how much income you need is a good starting point. So, instead of starting with your income, work backward and start with your expenses. Begin your calculations with your non-discretionary expenses, or your non-negotiable necessities.
This includes things like bills, debt payments, savings deposits, insurance, and investments. In calculating your expenses, be sure to account for how much money you need for groceries, gas, clothing, and other necessities you purchase every month.
While some of your expenses, like rent or mortgage, will be concrete, others may change from month-to-month. To account for fluctuating expenses, review those payments for several months and assume it will always be the highest number.
This will provide you with a cushion to make sure you always budget to cover your total expenses, sparing you from coming up short.
Calculating your total expenses tells you how much you need each month to satisfy your financial obligations. This is your bare-bones budget or the minimum amount of income you need for financial stability.
2. Make a Prioritized List for Your Discretionary Expenses
Your discretionary expenses are those non-essential purchases like streaming subscriptions, dinner out, and other entertainment expenses. You can live without these things, but when your budget permits, these are expenses you would like to afford.
Prioritize these items in order of most important. In months where your budget has some wiggle room, you can purchase these items in order of importance.
3. Keep Emergency Fund Deposits a Priority
While technically, deposits to your emergency fund are considered a discretionary expense, treat your emergency fund as a non-negotiable.
Your emergency fund is essential for keeping you out of debt and in overall good financial health…
Continue reading the article and learn more about budgeting on Life Is An Episode website.