Budgeting on an inconsistent income can be tough especially because it's hard to plan. For example, if you are self employed or work as a freelancer or a contractor, your income is dependent on how much work you do but sometimes it's not always easy to determine what your actual income will look like at the end of each month.
When it comes to budgeting on an inconsistent income, the best way to approach it is with a strategy that will allow you to be successful with managing your money and I'm going to show you just how you can do it.
3 Tips on how to successfully budget on an inconsistent income
1. Create a baseline budget
You can also call this your bare minimum budget. This is basically a list of all your necessities and expenses that you absolutely need to pay to get by each month. The total amount of these expenses is the minimum amount of money you'd need to earn until you can increase your income. This would include things like your rent/mortgage, food and transportation. This does not include going out to eat, shopping, entertainment etc - remember it's the bare minimum amount of money that you need to get by.
2. Prioritize your expenses
Once you create your baseline budget, the next step is to prioritize your expenses in order of importance. This means determining what bills need to be paid first, second, third etc. For instance housing, food and transportation could be items 1 to 3 on your list. Having this priority in place ensures that you are properly allocating your money to your top budget items first when you get paid. So even if your paycheck does not cover everything on your budget, you have the important things paid for.
3. Plan for future months during the months you earn more
If you happen to earn more money in a certain month, pay for your most important expenses first (as discussed above) and then plan to put aside some money in an emergency fund towards future months in the event that your income declines again. This way you can cover your expenses during those months without having to leverage debt. Make it a point to contribute to your emergency account before your spend your money on any non-essentials.
A next step would be creating a plan to increase your income i.e. getting a part time job, reviewing your products and services etc, this way aside from just paying expenses, you can start to save and invest too.
Putting a plan in place regardless of whether your income is consistent or not is the foundation to being successful with your finances. It's all about managing your expenses according to your income. Plan to revise your budget every single month and if you fall short, each new month is an opportunity to do better with your budget.
Got an inconsistent income? These 3 tips should certainly help you get started with managing your income the right way.
Are you currently budgeting on an inconsistent income? What successes have you had managing your money? Please share in the comments!
Bola Onada Sokunbi