Since I recently quit my day job and have been relying heavily on my freelance income, we’ve had to tweak how we manage our variable income. Every month is a slightly different financial situation and that can make financial planning really tricky because you never really know if you’re going to be struggling or rolling in the dough.
Whether you work on commission, are self-employed, or otherwise have an income that is never the same, it is important you know how to make the numbers work so you can stay on financial track and keep your stress level down … that way you’ll be able to deal with whatever the month throws at ya!
Here are 7 ways to balance your budget when your income is all over the place.
1. Get a Clear Picture of Your Income
The best way to know where you are going is to know where you came from. You may have an idea of what you are bringing in each month but until you write it down, you really can’t manage it properly. Go back and review your income in the last six months to see if there is an average amount you can base your budget on.
2. Know Your Expenses
Take the time to sit down with all of your bills and account statements and write down exactly what is going out each month including your house payment, utilities, insurance, vehicle costs, and groceries.
3. Determine if Your Current Strategies are Working
You may wait to pay all your bills once a month or you may pay bills as they come in. Whatever your method, you need to consider if it is really working. If you are paying late fees or miss payments entirely, your strategies most likely need some revisions.
4. Rate Your Stability
If your income isn’t consistent or if it has the potential to change in a moment’s notice, you need to consider what else you could be doing to secure a steadier stream of income. For example, if you’re self-employed or work mainly on commission be sure you have a back up plan if you find that a majority of your income is coming from one client. You don’t want your entire lifestyle to collapse if the client changes their mind. That’s way too much power for one client to have!
5. Calendar Your Expenses
Because those with variable incomes may live week to week, using a calendar to write down exactly what bills are due and when they are due throughout the month can be hugely beneficial. By writing out the bill due dates you’ll be able to get a more realistic picture of how much cash you’ll need to cover bills and weekly living expenses rather than basing your budget on the typically-advised monthly plan
6. Create a Must-Have Savings Plan
If you are not already saving, figuring out a way to make that happen is a great idea, and will help eliminate the stress of not having steady income. Ideally, you should be paying yourself a percentage of all income you earn. Adopt the “pay yourself first” model by taking the first 10%-20% of your incoming pay and put that right into a savings account. If that is too much of a budgetary stretch, try another method like committing $20-$30 each paycheck to savings. Then, if your income drastically dips you’ll have a financial safety net built up and you won’t have to go into full-on panic mode.
7. Don’t Overcommit Financially
When you are working on a variable income and can manage your current expenses, be very cautious about taking on additional expenses unnecessarily. Don’t use credit cards unless you have the cash in hand for purchases. Be sure not to commit to a new loan or other financial arrangement unless you have a healthy savings account. You don’t want to put yourself in the situation of being unable to fulfill your financial obligation and risk harming your credit and overall financial life.
Image source: Caroline Gutman