A consistent income doesn’t have to be a requirement for a well-oiled budget. Freelancers, independent contractors, and workers with inconsistent schedules don’t have the comfort of a standard paycheck every two weeks, but would still gain a lot from a working budget.
Planning your finances with that uncertainty can lead to overspending, reliance on credit cards or letting things like building savings or an emergency fund fall through the cracks.
Setting up your budget even with variable income is doable and you can be successful with it even if you don’t have three months worth of income saved up. It was a big help to Naomi who turned her finances around after finding a budget that worked with her always changing income.
Here are are eight steps that will help you budget with a variable income and still find ways to save.
1. Determine the lowest amount of income you receive
What does a dry month look like for you? You’re probably making more than zero, but it won’t be nearly as much as the good months. Figure out by looking back month-by-month and see just how much you can count on monthly no matter what.
2. Put your saved income, emergency fund or held income in a specific envelope
Find a spot for your saved income that you’ll be taking bill money from when your income is lower than normal. In Mvelopes, this could possibly be a specific envelope. In real life, it could possibly be a separate bank account or wherever you need it to be.
3. Start your budget with expenses in mind
Make a list of all the bills you pay in a month, add to it the savings you need to have each month and be sure to include your periodic expenses you also need to save each month. When you’re flush with money, fulfilling all those needs won’t be a problem. When your money isn’t as plentiful, just take care of what you can and leave the others for when you get paid.
4. Create a bare bones funding plan
Your expense first budget should serve as the basis for a funding plan in Mvelopes. Most funding plans run alongside paychecks or individual months. Set your funding plan up to be used each month, perhaps have one just for your bills and another for your saving and extra priorities when you’re rolling in the dough.
If your money is tight you’ll see how much leeway you have after funding your envelopes with what you need to pay. You can adjust your discretionary spending to make ends meet until you’re paid next or you’ll know just how much you need to scrimp to make it until the next month.
5. Each month use the funding plan of your bare bones budget and go from there
By focusing on paying your expenses first, you can make it from paycheck to paycheck. The only problem is it can be difficult to carve out savings from those requirements. At Mvelopes, we like the 10-10-80 budget (10% for savings, 10% for giving and 80% for the rest), but with variable income it’s best to think of it as an 80-10-10 budget.
You’ll need to figure out how much you’ll be saving when you get your paychecks, so it’s the first thing you do out of your check when you get it, but it won’t always be top of mind come the first of the month.
6. Create your ideal budget
Once you have your bare bones budget at the ready, sit down and create what you want your budget to look like each month. Live on your bare bones budget until you have saved enough money (a couple months) to live on your ideal budget, no matter how much income you have coming in. That way you’ll be saving and paying off debt like you should, but the ups and downs of your income will only affect how far ahead you are. When you have a low-income month you’ll use more of that saved money and when there’s a surplus you’ll be saving it for the next short month.
7. Manage your money before you spend it
Variable income also means varying priorities. At different times of the year, you’ll have different priorities. Manage your budget so you’re taking care of what’s most important first.
Spending money that you don’t have is a slippery slope to debt that can sneak up on anyone. Prioritize your budget and spend accordingly.
8. Plan for the future
Finding money when you need it isn’t a guarantee unless you have planned for just that occurrence. Variable income can make some things feel urgent and others not important at all. Stay focused on what’s important in the present as well as in the future and make financial decisions accordingly. This can include saving for periodic expenses, setting savings aside when money comes in, and getting to the point where you can be months ahead of your income, so a turbulent month won’t matter as much.
If you need help getting started budgeting, take advantage of a 30-day free trial with Mvelopes to see how you can adjust your priorities and achieve your financial goals.