How to Create an Irregular Income Budget

irregular income budget
Anyone can make a plan, but not everyone has a steady income to plan with. If you’re one of the many Americans who freelance, are self-employed, or working on commission, examine these tips on how to create an irregular income budget that works for you.

Work backwards

When you budget with a steady income you start with the amount you get paid and work within that scope to determine how much you can afford to spend on your housing costs, groceries, and other necessary expenses.

When you plan with an irregular budget you need to work backwards by calculating the cost of your necessary expenses (food, shelter, clothing, and transportation) and then determine the base line income you need to make in order to pay for those expenses.

Prioritize expenses

To calculate exactly how much money you need to cover your needs, take the list you made above and place the items in order of importance. For instance, food may be your most important expense so it’ll be on the first line with the amount you need to spend next to it.

Continue with your list until all your necessary items are in the order you want them, then add to it with other expenses you have, including how much you want to put towards savings. Once again, placing them in the order of importance.

As you go, keep track of the cumulative amount next to each expense as this will help you in the next stage.

Spreading out your paycheck

When you receive a paycheck you can use the list you made to pay off the items of higher priority. If your paycheck doesn’t cover the whole list, that’s alright.

When you get your next paycheck you can start where your last paycheck left off.

Open multiple bank accounts

When dealing with irregular income it’s helpful to open multiple bank accounts for different purposes. For instance, you may find it helpful to have a business checking, personal checking, emergency savings, and priority savings as 4 separate accounts.

Your business checking account would be for money deposited from clients for the services you rendered. If you don’t own your own business or freelance, you can just deposit your income checks, bonuses, and commissions from your employer into your personal checking account.

The personal checking is where you’ll pay all your bills from. You’ll only have enough in this account to cover your expenses. This way you won’t spend more than you’ve made in any month.

The emergency fund will include any left over money from your income after you’ve covered all your financial priorities. You should be aiming to have 6 months to 1 years’ worth of income in your emergency fund.

Lastly, your priority savings should include money you’ve saved for upcoming priority expenses that are usually due semi-annually or annually such as income taxes, home insurance, and car insurance.

You’ll get better

When you’re first learning how to budget it can be a struggle, especially with an irregular income. With a little time and effort you’ll get better at managing your funds.

What advice do you have for creating an irregular income budget?


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