SAN JOSE, California, October 5, 2021 / PRNewswire / – A budget can help you take control of your personal finances. However, budget plans and guides may assume that your income remains relatively the same throughout the year. For many people, this is not the case.
You might have irregular income because you run a business, work on commission, pick up side concerts or not having fixed hours at work. Whatever the reason, budgeting with variable income is not impossible, although it is a bit trickier. Here are some tips from myFICO on how to create a budget with variable income.
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Laying the groundwork and creating a workable budget can help bring certainty to your finances. This could be even more important for people who often experience the ups and downs that come with irregular income.
Start with what you know
You might not have a steady income, but you can start by creating the expense portion of your budget. Lowering those numbers can give you a baseline from which to build and help you avoid unexpected setbacks that might cause other people to sidetrack.
To get started, try to figure out how much you will need each month for different types of expenses:
- Some invoices stay the same every month, such as your rent or mortgage payment, phone plans, insurance, child care, loans and streaming services. It can be relatively easy to figure out how much monthly you need for each of these expenses.
- Other household bills may vary, like food, utilities, and gas. While you might not know exactly how much you will be spending each month, you can estimate an average monthly amount.
- Don’t forget about less frequent spending. Set aside the monthly equivalent of what you will need for infrequent expenses, such as vehicle registration, gifts, vet bills, vacations and subscriptions.
- Or to include pocket money within your budget. Create categories based on how you like to spend your money or your free time to track your “fun money” spending.
Many people also create expense categories for their savings goals. Maybe you are saving for retirement, establish an emergency fund, buy a house, or have another goal in mind. Set a goal of how much you want to save each month and add it to your budget.
Create a spending plan that doesn’t depend on your income
You can try different budgeting systems to see which one works best. But a tip when you have variable income is to budget using a fixed amount as income.
For example, you can add up all the expenses and find that you need $ 3,000 a month to cover your bills, enjoy the month and progress towards your financial goals.
Maybe you are in the middle of a busy season and $ 4000 a month. Instead of increasing your budget during these hunting months, set aside the surplus $ 1,000 in a special fund. This could be part of your emergency fund or kept in a separate account. Then, during the months when you earn less than $ 3,000, tap into this fund to make up the difference.
The system can add certainty and predictability to your finances which many people with variable income lack. You might think that you are paying yourself a fixed salary from your variable income.
Build your safety net
Building the funds you need to weather the ups and downs can take time. You may want to restart the process with a spend quickly and put aside the savings. Or look for ways to regularly to save money to reduce your basic expenses.
Ideally, you can build up enough cushion to have the money set aside for your “paycheck” before the month begins. You may even get to the point where you’ve covered the next two months, which could greatly relieve financial anxiety.
A large safety net can also open up new opportunities. If you have a business, you may be able to take on larger projects that pay more but require some upfront expense. Or you could be more picky about side gigs and wait for the deals that pay the most.
Stay flexible and reassess your goals
Budgets don’t have to be all-or-nothing rigid systems, and they will inevitably and naturally change over time. Partly because your income and expenses may change. But also because you will achieve and set different goals.
It is important to remember that financial health didn’t just match numbers on a spreadsheet. Ultimately, budgeting should help you take control of your finances and move towards your financial goals. If you need to take a short break or make a change mid-month, that’s okay, but try to find a sustainable system that works for you.
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