But imagine if your budget were to get blown out of the water because your paycheck got skipped. How would you keep your bills paid?
Yet, that is exactly what could happen each month to me and others who are self-employed. There are no guarantees of a paycheck which makes budgeting when your income fluctuates nearly impossible.
Luckily, there are ways of budgeting when your income fluctuates.
1. Break Down Your Budget
When you’re self-employed with a fluctuating income it makes budgeting a little bit tricky. One of the first things to do in overcoming the problem is to break down your budget.
Go through your bills and expenses with a fine toothed comb. Include an average of those that fluctuate in amount. Don’t forget the bills that don’t come monthly, such as doctor bills. Without exception eliminate every expense that isn’t absolutely necessary.
That can be the hard part for some people. It means ruthlessly crossing off some items on your list that may be really enjoyable. It also means you should look closely at expensive bad habits and eliminate them as well.
Remember that you can call creditors and try to negotiate down some of your expenses too. Additionally, when comparing income to expenses, use your average monthly income figured over a year.
This process gives you a starting point for budgeting when your income fluctuates. When you have months where money is tight, these are the bills that must be paid no matter what.
2. Make a Second Budget
Now that you have a basic budget you can make a second budget that allows more wiggle room. This one should include debt repayment and investments.
Clothing allowances, occasional salon visits, and other expenses would also go on this list. So would other expenses that are sometimes forgotten about.
During months when your income is higher you can spend money on these other items. Using caution you should be able to provide for your basic needs and at least some wants.
3. Start an Emergency Savings Account
The next step to budgeting when your income fluctuates is to start an emergency savings account. This will help you make it through unexpected financial crises that could happen during months of lower income.
Set aside money each month into this account until you have enough to cover three or more months of expenses. Try not to dip into this money unless you have no other choice.
4. Allow Room for Errors
Don’t expect your budgeting to be perfect the first time. You may have to make corrections and adjustments as time goes on. This is normal so don’t give up!
Life circumstances change which can have an effect on your budget. Income and expenses also change as time goes on. To help with those issues, be prepared to continually update and change your budget.
5. Set Money Goals
Something else that can help when your income fluctuates is to set financial goals. Having a clear picture of what you are working toward makes it easier to stay on track.
For example, without goals it’s easier to spend on frivolous things you want now instead of saving for the future.
Let’s face it; budgeting isn’t easy when you have to estimate your expenses. But estimating income can be just as hard. Budgeting when your income fluctuates can be easier using these tips.
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
Does your income fluctuate from month to month?