Budgeting for irregular income is something that I’m often asked about and if you or your spouse is self-employed or you don’t receive a regular paycheck each month, you know just how challenging budgeting with irregular income can be.
Many years ago, my husband I lived off his income as a sole proprietor and I’ve seen firsthand how easy it can be to wreck a budget when you don’t know how much money is coming in that month. So I developed a system that helped us to better budget our money when we had no idea how much money would be there.
The basic budget formula is this:
Income – Expenses = Difference
Pretty simple right? Well, if you have irregular income that “income” spot in the budget equation is a big ol’question mark. And remember how you swore you’d never use algebra outside of high school? Well, guess what? You’re about to prove that is a myth. 😉
Basically, you’re going to go with what you do know:
X – Expenses = Difference
You know what the difference should be – it should be zero because every penny you earn should be going somewhere whether it’s to savings, paying for expenses, or paying off debt. So your “Difference” needs to be zero.
You should know how much your expenses should be for the month – as in you should know how much money it generally takes you to live. So you’d need to account for all your bills, groceries, and anything else coming up in the month that is a “must pay for” expense like co-pays for doctor visits, or prescription refills or even any birthday parties coming up.
Related Post: How to Determine What Expenses to Cut
Once you tally those expense totals up, now you know how much your expenses should be. So let’s add some numbers to our budget equation:
X – $2,500 = $0.00
Looking at it like this, you now know that you must absolutely, make at least $2,500 this month in order to “breakeven” and reach your $0 total. Granted, if you earn more than that this month that would be a blessing but I want to encourage you, that whenever you do exceed the minimum amount you must earn in a month that you have a plan established for that money. Like adding it to your debt payoff plan or funding your emergency fund.
Related Post: The $5 Savings Plan
Don’t just let that extra money slip out of your hands. If you need a little more help with figuring out how to make this budget formula work, I explain it here in this video in case you like visuals. 🙂
I hope this helps you if you’re living life with irregular income, but even if this doesn’t apply to you, if you know someone that it does, please feel free to share this with them as I know it can be so daunting to try to figure out budgeting with irregular income.
Do you have irregular income? What advice can you offer someone trying to figure out how to budget for irregular income?
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