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Budgeting Tips For People With Irregular Incomes
If you tend to spend more than you earn, you’re certainly not alone.
Research shows that people who do so are more likely to dip into their savings or rely on credit cards monthly.
This problem is compounded if you make an irregular income monthly due to the lack of predictability.
Irregular income could be derived from:
- Consulting or freelancing,
- Working in sales on a commission,
- Doing part-time work,
- Earning income hourly,
- Starting out as a start-up entrepreneur,
- Or generally being self-employed.
In my experience, some of these activities are by design, whilst others are a necessity.
It goes without saying that most people would like to be able to predict their incomes with ease.
However, not everyone has the luxury of making the same amount of money each month, and then being able to plan.
Making more than you expected is always a nice surprise. The blow comes from making below an expected minimum.
I know this well because years ago when we set out to launch our nursery business as a family, Mary worked part-time and earned hourly.
This was necessary to keep the start-up afloat, with expected future upside. However, what we hadn’t forecasted was the knock-on effect of hourly work.
Whenever she missed work for any reason, she didn’t get paid, and this had a real cost at home as we had to adjust somehow.
Such costs are not just financial, but can also put a strain on marriages and relationships.
So I am fully aware that this is a problem for many others out there and every step should be taken to make sure it doesn’t bring on misery.
Budgeting is not something that should be done when you feel like it. Rather, it is a necessary control if you want to experience financial joy in your life.
In the face of irregular income, budgeting requires fierce attention and discipline in order to protect yourself from the worst.
Having experienced this problem of irregular income for some years, below are my top tips for sanity:
Make Savings A Priority
The biggest problem with irregular income is that it leads to irregular outcomes.
You’ll most certainly have unexpected expenses that crop.. You’ve guessed it.. In the same months that you have a shortfall.
As such, a big part of managing your irregular income is to prioritise savings and growing your savings pot.
To start, I’d recommend aiming for a pot of 3 months worth of your regular expenses. Commit to making this a minimum and making it untouchable ordinarily.
Focus On Costs
The one thing you have under your control with irregular income is your costs.
As you’d expect, it’s not every item of cost that you can expect to cover when you have a shortfall.
This creates a real trade-off as you’d need to prioritise expenses and choose those that should be paid for first.
We dealt with this by starting with our essential costs first i.e. mortgage, food, and transport.
You might find this stealth approach difficult as you might have costs that you enjoy having e.g. TV package etc.
In such circumstances, you need to make the decision to swim, and the only way to do it is to let some things go.
The last thing you want to do is resort to using a credit card and deferring the costs against future income. Please don’t.
You’ll learn so much from the discipline of making hard decisions in hard times. Most people don’t and end up choosing a life of misery.
One other thing to mention as you prioritise your essential spend is to make sure that you keep an eye on automated payments like direct debits and standing orders.
Make a list of all recurring spend by amount, and write down the date when those payments leave automatically.
Keep this close when you make decisions on what makes the cut. The earlier in the month you do it, the better.
There will likely be a pattern in your irregular earnings each month.
Spotting these and working towards how to address them is important for managing the situation.
You might notice dips during annual holidays like Christmas, or even during the Summer months.
For us with little children, the Summer holidays were brutal double whammy! This is because staying at home introduces the hidden cost of childcare and related entertainment.
Such observations can help you either plan contingencies such as taking on more work or using savings.
Other important periods to be aware of include the tax year end, especially if you’re self-employed.
Create A Maximum Cost Budget
Given the predictability of irregular income, it helps to come up with a cap on all your costs.
This should be made up of your monthly essentials with some margin built in.
Say your monthly costs come to £2,500. Anytime you make income above this amount, you should save that for the rainy days.
The psychological aspect to doing this gets you used to a certain amount of outgoing, forcing you to say no to others.
As an example, our food costs at home has remained at £50 per week from when we were newly married to now as a family of 4.
Ofcourse food prices rise and we can come up with excuses to justify all kinds of items in our shopping budget.
However, we see the positive impact of this cap and others in such areas as mortgage overpayments etc.
In fact, I’d go as far as saying that you start becoming rich when you’re able to maintain your lifestyle as your income rises.
This is one thing most people cannot do. The level of your financial intelligence is measured by your ability to manage cash flow.
Start A Side Hustle
Although costs are the primary aspects of the budget that you have immediate control over, making more money is another.
Starting a side hustle is an important way to boost your income and guarantee that you aren’t always held prisoner.
As with any activity that involves creativity, side hustles require hard work and time commitment.
However, they give you control and ownership, the two things that make anyone rich.
You do not need to reinvent the wheel here. Start with what you know already or what works.
I encourage as many people as possible to start a blog if they want to make more money.
It not only provides diverse income streams but also passive streams eventually.
To make it super easy, I’ve written a step by step tutorial you can follow.
Alternatively, if you want to begin the journey of starting your own side hustle, feel free to join the course below:
In this 5 day course I will teach you exactly How to Launch a Profitable Side Hustle. This course will cover the ideation phase, market feasibility and business plan, formulating strategy and tactics, and the final launch! Start Today and Change Your World! Be Fearless!!
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In this 5 day course I will teach you exactly How to Launch a Profitable Side Hustle. This course will cover the ideation phase, market feasibility and business plan, formulating strategy and tactics, and the final launch!
Start Today and Change Your World! Be Fearless!!
Income In Advance, Expense In Arrears
This tip is one way in which businesses manage their working capital and cash flows.
It simply involves making sure you get paid in advance for your work, whilst making your payments in arrears.
What you don’t want to do is push your expenses out such that you risk missing them.
However, you can do it well enough to buy you sufficient time.
Combined with elements of your income in advance, this method can create sufficient time and money margin.
This is especially relevant if you’re self-employed or make your money through various projects.
Either way, some element of income and expenses in advance and arrears respectively can be explored by everyone.
- How To Budget And Save On A Low Income
- 50+ Ways To Save Over £10,000 Every Year
- Are You Stopping Yourself From Saving Money?
- 85 Ways To Make Extra Money Today
- How To Create A Budget That Works For You
Are you self-employed or make irregular income? How do you manage to make sure you spend less than you earn? Please share your tips below.
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.