4 Keys to Budgeting on an Irregular Income

It’s no secret that a budget can drastically improve your finances. A monthly budget gives you a clear picture of where your money is going and sets parameters for your spending. 

Simple in theory but hard to implement. Budgeting can be especially tricky if you have an irregular income. 

How can you make significant financial strides when you’re not sure how much money will come in this month? 

Here are four tips for getting organized when on an hourly income:

1.     Find Your Worst Month

Irregular incomes can thrust us into a “feast or famine” cycle. Some months you’re eating prime rib, while others, you’re secretly selling your kids toys on Craigslist. What can you do?

The key is planning your month based on a worst-case scenario. 

Look at your income over the past six months. What was your lowest earning month? Moving forward, we’ll want to use this as a baseline. 

By creating a budget based on your worst month, you’ll ensure that you always have enough money to fund your expenses. It’s much better to have extra money than not enough when it comes to budgeting.

2.     Spend Your Money on Paper First

Now that you know your lowest potential income, it’s time to create a budget. 

Write your lowball number at the top of your budget page and start totaling your expenses. Your income must be higher than your expenses.

As you go through your monthly expenses, start with the essentials. Make sure you allocate money toward your house, utilities, and transportation. Once you fund those items, you can start budgeting other bills and expenses. It’s important to account for every single dollar you will spend this month.

Once you get to the bottom of the page, total up your expenses. This number should be smaller than the number at the top. If it’s not, you might need to go back and make some cuts. 

By creating a budget and spending money on paper first, you can catch and solve money problems before they happen. 

3.     The Gravy on the Biscuit

What about those really good months? The ones where you pick up extra hours and make a whole lot more money than usual?

Consider all of that gravy on the biscuit! You can direct any extra money you bring in toward your financial goals. Are you trying to build up your emergency fund, save for a big vacation, or knock out a student loan? This surplus of money can be laser-focused on that goal.

If you’ve had an excellent month, add some extra money into your budget for you to enjoy. Just make sure you have a plan for every additional dollar you brought in so that it doesn’t disappear.

4.     Periodic Adjustments

Now and then, you’ll want to adjust your “worst-case scenario” number. If you notice you’ve made a lot more for multiple months, it may be time to adjust. Look back and see what your worst month had been and adjust accordingly.

However, if at any point you make less than your worst-case number, it may be time to adjust it down. 

Look deeper to see if there were anomalies that may have caused the lower month. What happened to cause it to be short? Could it happen again? Missing a week because a kid was sick could happen again. A snowstorm in Texas, however, can likely be written off as a one-time thing.

Budgeting for an irregular income can be challenging, but having a plan will add some consistency and clarity to your finances.