Inconsistent Income? Here’s How to Stick to a Budget Anyway

Dec 3, 2018 4:30:00 PM

Every list of saving tips says budget, budget, budget – but making a monthly budget and sticking to it can be hard; particularly with an income that varies from month to month. Maybe you’re a freelancer, a seasonal worker, or working a full time job with a part-time job on the side – whatever the reason, a traditional budget plan might not be your top tool to save money, so you’ll need to think a bit outside the box.

First, avoid debt whenever possible. Credit cards are a great way to build your credit score, and some debt is necessary and even beneficial in the right circumstances, but overall, additional debt will only make it more difficult to stick to your budget when cash is tight. If you’re already accruing interest on debt make sure you’re paying it down as much as possible, starting with the highest interest debt first. But don’t cut up your credit cards yet! Simply ensure that you have enough savings in the bank each month to pay off the cards before any interest accrues.

Set some sensible limits into your budget, and make sure that your spending habits work when you’re unsure how much money you’ll bring in from month to month. For example, simple cutting out impulse purchases can save money, big time. Force yourself to always wait 24 hours before buying something you haven’t budgeted for, and think about purchases in terms of how many hours you’d need to work in order to buy it.

Another great saving tip is to eat in and prepare your own meals whenever possible. Buy staple foods and non-perishables when your income is seeing enough money coming in and you can afford to stock up – but beware of buying things solely because they’re on sale. Sales are great for budgeting, but don’t buy something you won’t use.

So now that you’re saving money where you can, what do you do with that extra cash, knowing it won’t be the same amount each month?

Start by making two separate monthly budgets. Figure out the minimum amount that you need each month to pay all your bills and keep yourself fed. This is the “worst case scenario” budget. Round these numbers up whenever possible.

Then make a second budget that covers the above, plus your basic creature comforts and the occasional small splurge. Don’t go overboard, but don’t deprive yourself of simple pleasures. This is your “comfortable living budget.”

Finally, look at your past yearly income, month to month, and find your lowest monthly earnings, your highest, and your monthly average. Round down whenever possible. Seasonal workers and those with predictably varying incomes will have an advantage over freelancers or full time/part-time workers: knowing your lower-income months are coming means you can budget extra beforehand, but knowing your income highs and lows will be useful even if you can’t predict which months are which.

Whether your lowest monthly income is above or below your “worst case scenario” your goal is the same: get ahead of your expenses.

During lean months, any extra cash above your “worst case scenario” should go towards your savings. Aim to save one extra month’s minimum expenses at first, but get as far ahead as possible. One month is okay, three is good, and six is great. With a big enough buffer you’ll be able to switch to your “comfortable” budget even during lean months.

Once you’re at least one month ahead, keep topping up your one-month buffer, and split any extra cash between increasing that buffer and paying into things like 401Ks, retirement accounts, and emergency funds. An even split of any extra cash will slowly but surely secure your future, both immediate and long term.

Then there’s the good months where you’re bringing home more than average. While it’s tempting to tell yourself “I’ve already covered everything in my budget, now’s the time to splurge,” resist the impulse to burn through that extra cash. Consider saving money in a “rainy day” fund and a “big purchase” savings account. Add cash to each of these during comfortable months, and you’ll be able to have lots of fun even during the lean months.

It will be hard at the start, especially if you can’t predict when a lean month might be coming, but if you stick to your budget and your saving tips, you won’t need to panic when an inconsistent income slows down. You might even break into the “fun” funds to celebrate – after all, you've earned it.

Tags: Money Tips, Debt Management, Budgeting