Smart Ways to Budget

Are you starting a new commission-based job, working freelance or transitioning through seasons where income varies? If you answer yes, chances are you will have variable income. The high-earning months ensure that everything gets paid with some money left for savings, but the lean months could put you in a vulnerable financial position. But still, there are bills to pay so it’s important to nail down a budget that will serve your fluctuating income.

Determine the Average Expenses Each Month

You’re likely to have regular and recurring expenses each month despite your fluctuating income. Knowing the average expenditure will help you nail down an estimated amount that you will need monthly. The purpose of this step is to determine how much you will need monthly to get by and if there are potential areas you can cut back on during the lean months.

Consider Irregular Expenses

There are expenses that don’t occur month per month. For instance, you’re likely to be paying insurance every quarter or annually. Also, unexpected expenses like emergency medical bills and car repairs could wreck havoc to your budget. To ensure that all bills are accounted for, divide the cost of irregular expenses (eg insurance) to their monthly equivalents. It also helps to develop an emergency fund for trips to the ER or urgent car repairs. Alternatively, adopt a sinking fund where savings for these specific expenses are deposited. If you have a sinking fund for car repairs and maintenance, you only need to tap on it when needed and not have to compromise the budget for your other expenses.

Live with Bare Bones Budget

Consider the worst case scenario and develop a budget for it. Live as if you will always have lean months or that you’re only earning the minimum. When you get used to a very basic budget, you’ll find it easier to live and go by even with minimum income. A basic budget will also leave you more room for savings and fun money if you happen to be going through good months.

Be Realistic but Flexible with Your Budget

Given that you have fluctuating income, expect that things in your budget will fluctuate as well. You might have more entertainment money in one month, but nothing for the next month. You just have to deal with these changes and modify the budget whenever required. The most important thing is to cover all the basics first – food, shelter, basic utilities and transportation. When you go through a specifically rough month, it’s easier to cut down on your luxuries while ensuring that your basic needs for survival are taken care of.
Living with an inconsistent income could get a little tricky, but a great and working budget does the trick. The key to minimize the guesswork is to try to budget for every possible expense, whether it’s recurring or not, and stash some savings to help you deal with surprise expenses.