How to Budget When You Have Irregular Income

Planning your spending strategy is not an easy walk in the park, especially if you have a fluctuating income. You can go from earning $1,000 each week to almost nothing a month. This is usually a reality for most freelancers, self-employed, independent contractors, and students.
If you have irregular income, budgeting can be challenging, if not downright daunting. But it doesn’t have to be that way. With the following tips, you can budget with fluctuating income and take your personal finances to a whole new and exciting level.

Start Off by Identifying your Expenses
Before you attempt to create a budget with irregular income, figure out what your expenses are. Draw up a list of all your daily, weekly and monthly expenses. This is stuff you must spend on regularly. Your credit card and bank statements can come in especially useful when identifying these regular commitments. You can also monitor your spending for a week or a month.
When you are done with your list of things you spend your money on a regular basis, you can then move on to less regular expenses and long-term commitments.

Use your Average Income to Create a Budget
If you have been dealing with fluctuating income for more than one year, you can average out your net annual income for at least two years. With your average income on hand, you can now build your budget. More importantly, if your average monthly income won’t cover your expenses, you might want to find ways to supplement and spruce up your income. Alternatively, you can figure out ways to cut back on your expenses.
If you are an independent contractor or self-employed entrepreneur, don’t forget about your tax obligations. As part of the budgeting and planning process, create a separate savings account to handle tax payments.

Use Two Separate Budgets
If your income is oddly irregular, you might want to have 2 budgets, one for leaner months and another for good months. Of course, having two budgets comes with its own fair share of challenges. For starters, you can end up developing poor spending habits during “better” months. The second drawback is that you can over-depend on debt (credit cards, overdraft, loans, etc.) during leaner months.


Set up a Holding Account
This is a good strategy especially for students and entry-level freelancers. In this strategy, you have to open a holding account which will hold your income, including grants, allowances, loans, and so on. This way, you can withdraw a constant amount of money from the account based on your commitments and affordability.
April 11, 2019

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