Do you live on a sporadic income?
It can be tough at times. We lived on a flexible income for over eight years. It took quite a while to adjust to ‘riding the wave’ (as I called it.)
But you struggle to feel like you’re on top of your finances when you aren’t sure how much is even rolling in during the month.
Previously I’ve shared many great tips on the blog about saving money, paying off debt and also how to stick to a budget, but I haven’t shared how to create a budget which will work with an unsteady income.
Here’s how we made a budget when we lived on a flexible income.
Creating a Variable Income Budget
Budgeting on a flexible income may sound like an oxymoron, but I assure you it isn’t. You must be as flexible as your income is.
Unlike with a fixed income, you can’t possibly know where each little necessity, debt relief, and bill is going to come from.
You can make a schedule, but you may not hit the mark every time. That is okay, but you still must plan.
Here’s how I rode the wave of a flexible income for eight years:
1. Know Your Bills
When you live on an unsteady income, the first thing you must do when creating a budget is to know what your bills are.
You can’t say, “Well, I’m pretty sure we pay this amount every month.” You must know what you pay. For bills which vary (such as utilities), you should know what your average bill is and have a game plan to keep the bills at or below the average.
You should also know when each bill is due. It doesn’t mean you’ll have the money to pay it at the due date, but you should be able to see how your bills flow for the month.
For instance, if you see most of your bills are due at the first part of the month, you should get on the phone and begin pushing some due dates around.
The chances are that unless you save your bill money a month in advance, you won’t have the money to pay them all on time.
This incurs late fees, but it could damage your credit as well. Know your bills, know the goals for the bills which fluctuate from month to month, and make sure your bills are spread out throughout the month.
2. Know Your Needs
It’s vital you know what you need each year to survive. If you have children, remember their birthdays, Christmas, clothing, school supplies, and some medical or dental expenses which will arise throughout the year.
Regular yearly expenses should be accounted for as well. As an example, if you own a vehicle or property, you’ll have taxes due at some point in the year.
You should also consider:
- Regular car maintenance
- Personal maintenance such as haircuts, etc.
- Medical and dental co-pays
If you know what you need to cover throughout the year, when a larger than usual check arrives, you’ll know what to do with the extra money.
Don’t ever spend extra money when living on an unsteady income until you know all significant needs are covered because you don’t know when you’ll have extra money again.
A good way to come up with what you must have for the year is to look at when you have extra paychecks throughout the year.
Those months especially, strive to get your bills covered with your regular checks and save the extra paychecks to cover your necessities.
3. How Much Money Do I Need?
As much as it’s important to know how much your expenses are, it’s vital to know how much money you need to make to survive.
By adding up all of your monthly bills, you’ll know what you should be bringing in during the month.
Next, add up your yearly expenses. This will let you know how much extra income you should account for.
If you get paid weekly, you should be used to getting four paychecks a month. Any month with five weeks will then have a ‘bonus' fifth paycheck.
Either assign extra yearly expenses to be paid by a bonus paycheck, or divide the amount that will be due by 12, and try to save that amount of money monthly.
Lay all of this out on paper to help you have a reference point when things get difficult throughout the year.
This will let you know what your original plan was and give you an idea as to how you can change your plan if things don’t go quite as planned.
4. Make a Debt Relief Plan
If you live on an unsteady income, your goal is to avoid debt. It lessens the pressure you feel each month to make a certain amount of money.
If you owe less, there’s less you must pay out. However, I also realize this isn’t realistic for everyone.
Whatever your situation, if you have debt, you must make a plan to pay it off faster. It will lighten your load each month.
Therefore, even if it’s only $20 a month, use it to make an extra payment to your smallest debt. When your smallest debt is paid up, it will free up the $20, which you can roll over and assign to pay the next smallest debt.
I’m a fan of Dave Ramsey’s snowball debt relief plan. It’s helped me in the past, even when we lived on an unsteady income.
It may not be as smooth sailing as the plan lays out because you don’t know when you’ll have a good month or a bad month but make the good months count and dig out of debt when you can.
When creating your budget, list your debts from smallest to biggest. Though you may not be able to lay out an exact amount you’ll pay off each month, set a goal amount to pay each month. Make it realistic for your situation.
At least it will help you organize which debt you are working to pay off first and the order after that.
5. How to Handle the Highs and Lows
No doubt you’ll have highs and lows when living on an unsteady income. There’s no financial peace on an irregular income because though you hit your mark one month; you don’t know what the next month holds.
Therefore, working to get out of debt is the only way to lighten your financial burden. My tidbit of advice is this:
- During the months with good income, pay your bills first, stick to the same gas and grocery budget, try to cover as many necessities for the year as possible, and whatever is left throw it at your debt.
- During the low months, eat first, fill your car’s gas tank, and pay as many bills as possible.
- During the middle of the road months, pay your bills, stick with your usual gas and grocery budget, meet a few necessities, put something towards your debt.
6. Is Something Missing?
You may have noticed; I didn’t account for savings in this budget nor spending. My reason is, savings are important, but I also know, if you don’t go ahead and apply the money where it’s needed, you’ll end up draining your savings account anyway for the things you need.
Therefore, it’s important to go ahead and use the money you bring in each month to pay your monthly expenses, provide for your yearly necessities, and start working towards paying off debt.
Once your yearly needs are met, you can divide the money left over every month between debt, savings, and spending.
I realize you must have wiggle room, but it’s hard when you live on a flexible income. However, once your yearly necessities are covered, do enjoy the small amount of breathing room you have.
Use the money to go out to eat, pay for a small vacation, or any other item you’d like to purchase but usually couldn’t.
Also, add money to your savings account to help for the unexpected expenses or the months when you don’t make enough to cover everything.
Finally, continue to work towards paying off your debt. It makes more difference than anything when living on an unsteady income.
7. Different Ways to Keep Money in Savings
If you’re struggling with ideas on how to cover some of your expenses, consider putting your change to work.
I use Acorns which I link to any debit or credit cards I use. They round each purchase up to the nearest dollar and store my change in this account.
When I’m ready to cash it out, they transfer it over to my account. It is a great way to save money and not even realize it.
Therefore, you could use this to save for Christmas or even use as your children’s school fund, depending upon how much you could realistically save in this account.
Also, consider using a separate savings account for the yearly necessities you’re saving up for. You may even want to put it in a different bank. This will make it more difficult for you to pull from on the tight months.
The idea is to brainstorm on paper where your money should go and how you can make it work for you. Though it may not look like a typical budget, budgeting with an irregular income is still possible.
Knowing what you need each month to meet bills, what you need through the year, and having a plan to get out of debt, will keep you organized and keep your money working for you.
It may not be as neat of a picture as you’d like (I’ve been there), but creating a variable income budget is worth every bit of effort to have a better financial future.