You would often notice the top advice for managing finances better on any blog dedicated to personal finance is the need to establish a budget. Budgets are fantastic tools, but they pose a challenge if your income isn’t constant. Constructing a budget becomes notably difficult when you’re unsure of your monthly earnings.
As a freelance writer, my income fluctuates quite substantially. Some months, I may earn a $1,000 more than the previous month, or perhaps hundreds less. My spouse, a police officer, has a similar unreliable income, with overtime and long hours being a standard part of his job description. It seems as soon as we begin depending on his overtime pay, the hours abruptly decrease.
However, don’t let an inconsistent income deter you from efficiently managing your finances.
THE SILVER LINING OF AN UNSTABLE INCOME
What initially felt like a major inconvenience has evolved into an invaluable lesson on handling personal finances. Our unpredictable income has educated us on budgeting for fluctuating financial situations.
We’ve learned that an inconsistent income requires budget adjustment to account for the uncertainties. While it’s more challenging, managing a budget with fluctuating income isn’t impossible. If you’re trying to navigate such an income, here are some budgeting tips that could assist.
STEP 1: LAY OUT YOUR MINIMUM MONTHLY BUDGET
Even though your income isn’t steady, your bills remain consistent. Review your bank statements from at least the last three months and determine the average sum of your income and expenses. The first step in budgeting is understanding your monthly expenses.
How much goes towards rent or mortgage? What are your monthly expenditures for car, house, and health insurance? What does your grocery shopping, gas, and household items expenses total?
Compute the minimum sum required to maintain a balance in your health and household; everything additional is surplus.
STEP 2: ALLOCATE SURPLUS INCOME IN A SEPARATE ACCOUNT
After identifying the bare minimum necessary each month, cater to these essential bills first followed by allocating funds for groceries and gas, and then separate the remainder into a different account.
Creating a financial buffer from your high-income months assists in avoiding financial strain during lean months.
STEP 3: KEEP PAY DAY SPENDING IN CHECK
Controlling spending on pay day can be tough, mainly if a hefty paycheck arrives after a lean month. While a large sum in your checking account might entice you to splurge on non-budgeted items, it’s crucial to resist such tendencies.
Unchain yourself from the temptation of excessive spending because that could risk your sustainability during lean months. Treating yourself with some takeout is okay, but make sure not to exhaust your account. You wouldn’t want to face a funds shortage in coming months.
STEP 4: ADAPT TO A MINIMALIST LIFESTYLE
When we first grappled with an uncertain income, we resorted to a minimalist budget. We managed to decrease our cell phone bills, cancelled our cable subscription, and compromised on several services. It quickly became apparent that economising facilitated saving. With a frugal demeanor instilled, the desire to spend on non-essentials faded and saving turned into a regular practice.
If you save more, you expand the gap between your minimum monthly budget and the funds available during lean months.
STEP 5: BOOST YOUR INCOME
If you’re economizing during peak months, have minimised your bills, and are still finding it challenging to cover costs during lean months, it’s time to augment your income.
Thankfully, as a freelance writer, there’s always the option of taking up more tasks to replenish income. Picking up a side job can also be a good idea for an added source of income and to cushion your bank account during lean months.
If writing appeals to you, consider freelance writing. If you have a knack for graphic design, you can offer your services online. You could even become a part-time virtual assistant if you possess administrative skills.
Turn your talents and skills into money-spinners. An extra source of income can alleviate the stress during lean months, and possibly even eradicate them.
FRUGAL LIFESTYLE IS ESSENTIAL DURING PEAK AND LEAN MONTHS
By setting a strict budget and sustaining a frugal lifestyle regardless of variable income, saving during peak months and surviving lean months becomes significantly effortless.
If you reduce your budget as much as you can, save as much as possible, and seek additional income through side gigs or other opportunities, you can definitely manage an inconsistent income.
Do you cope with fluctuating income? Any budgeting advice for people in a similar situation? Do share your experiences of managing finances with inconsistent income.
