Let’s assume you’re the picture perfect American family. You’re a stay-at-home mom, and your husband earns a median income paid once a month. You have 1.7 kids (not sure how you managed that one) and a dog. For you, budgeting is a breeze: The bills come in, and the money goes out. Easy peasy.
But what if you’re not the picture perfect American family? What if you’re one of the millions of other families who looks just a little bit different? What if you’re self-employed, single, and you have three kids? What if your husband barely makes $20,000 a year, and you’re currently unemployed? What if you’re like any number of people who live paycheck-to-paycheck?
IRREGULAR INCOMES Make a Huge Difference
Let’s imagine you’re Lisa. Lisa works as a receptionist and makes $25,000 per year. She’s married to Billy Bob, a heating and air technician who averages $50,000 per year. They have three kids and live in the suburbs in a middle class community.
Lisa brings home a weekly paycheck, while Billy Bob’s is monthly. Billy Bob’s work schedule fluctuates, and his income is variable. They live in the South, so Billy Bob works overtime in the summer (people gotta have their A/C). But his hours plummet in the winter because it doesn’t get very cold in Florida. His paychecks range from $2500 in the mildest months of the year to $6000 in the summer months.
Meanwhile, Lisa’s paycheck is steady at $400 (take home pay) every week. But she’s paid weekly. Because there are 52 weeks in a year, some months have more paychecks than others.
Obviously, Lisa and Billy Bob are going to have a hard time estimating their monthly income. Their net income range from $4100 to $8000 per month. That’s a pretty big difference!
Now, Lisa and Billy Bob are just one example. You could be a freelance writer (like me!) I never know how much money I’ll make each month, which is why I use the following steps to do my budget. (And, yes, I do this every month. It works.)
Figure out your minimum budget. How much do you need to survive?
Your minimum budget is the bare bones expenses. This should include:
- Gas for driving back and forth to work, school, and medical care
- Necessary medical care
- Mortgage or rent
- Car payment(s)
- Minimum credit card/loan payments
This should not include any discretionary expenses. That means anything fun, including but not limited to:
- Internet (unless you need it for work)
- Fast food
- Date nights
- Clothes (Unless your underwear is falling apart and literally can’t make it another month, in which case you may have bigger problems.)
- Salon visits for Fido
- Salon visits for yourself (no, highlights are not a necessity)
- Anything that makes you happy (just kidding – kinda)
Now, before you get too upset, please remember that this is your minimum budget. On average, you should (and will) have more categories than this, but we’re starting with the minimum for a reason. You can also make an average or even an ideal budget if you like. It’s your life; I’m not here to judge.
Estimate your lowest, average, and highest incomes.
Next, you need to figure out how much money you make. This is easier than it sounds.
- Calculate your income for each month of the last year. Make a list with the month and the amount next to it.
- Circle your lowest income month.
- Circle your highest income month.
- Add all of the monthly incomes together, then divide by 12. That’s your average.
Before you go any further, you should see if your yearly income can even cover 12 months of your minimum budget. If it can’t, you have an issue and should look for a different job (or second job) immediately. Still, you can and should use this budgeting method while you’re finding that extra income. It’s the only way to make sure you can cover the essentials.
Prioritize your expenses.
This is easier than it sounds. First, make a list of all of your expenses. Then, starting with #1, number those expenses based on priority. Food should almost always come first because you have to eat. Then your rent or mortgage, utilities, gas, etc. should all fall into place. After that, you can include a line for savings, then your fun expenses like date nights, restaurants, and all that jazz.
Pay your bills based on priority.
Next time you’re paid, look at your list. Start by paying your most important bill or funding your most important expense. Then work your way down the list until you run out of money. Repeat the process every time you’re paid until you cover all your bills and expenses.
Build a safety net.
As you follow these steps, it’s important to remember something: You need to build a safety net for those lowest income months. Otherwise, you’ll be miserable when you can’t afford anything outside the bare minimums.
That’s why I suggest putting a “savings” item just above all your fun discretionary expenses on your prioritized list. By saving a little (or a lot, depending on the month), you can rest easier knowing that your budget works, even when the money is only trickling in.
Whatever you do, don’t get super excited and blow all your money when you hit a huge payday! At this point, it’s more important that you save that money for later. Eventually, your safety net will be full, and then you can have a little more wiggle room.
How much should you save?
I can’t recommend an exact savings amount because it’s going to vary from one situation to the next. On average, most experts suggest saving 3 to 6 months of expenses, and that’s a good goal to start with. If your income is more unreliable than average or you’re worried about the future of your job, I’d suggest saving even more.
Do you feel like budgeting is harder when your income varies? You’re probably right. I, for one, prefer working with nice, round numbers that perfectly match my goals and expenses with absolutely no surprises. But that’s just not my reality. And while irregular income planning isn’t exactly my favorite task, it ultimately saves me a lot of financial anxiety in the long run. So, while it’s a bit of a struggle (especially the first time you do it), budgeting a variable income is worth it in the end. And it gets easier every month.