Irregular Income Budget: How Do You Create a Monthly Spending Plan?
Most budgeting plans suggest looking carefully at your regular monthly income. However, if you own a small business, earn sales commissions, or have a side gig, you may have an irregular income budget. So how do you create a monthly budget and stay organized when you're never quite sure how much money you'll make each month?
The answer is to create an irregular income budget. A bit different from a regular monthly budget, this type of budget is still simple to set up, and can help you feel more confident about planning for both short- and long-term financial goals when you have multiple forms of income.
1. Establish a Monthly Income Baseline
This is the minimum amount of money you know you can typically count on earning (after taxes) each month from all of your earnings sources. Some months you might earn more, but this amount is money you can always rely on collecting.
If you're unsure of how to determine this number, review your last 12 months of bank statements. A safe strategy is to use your lowest total monthly income over the past year as your baseline income, suggests Dave Ramsey, author of "The Total Money Makeover."
2. List Your Critical Monthly Expenses
These bills include mortgage or rent, utilities, food, insurance, and minimum required debt payments. Your baseline income might not be enough to cover all of your monthly expenses, and that's fine. You'll get some much-needed extra control over your monthly financial planning in step four. Another option for managing your budget is to use a digital tool that can identify these spending habits for you.
3. List Other Monthly Expenses
These items might include extra payments on bills, or things you can't quite afford during tight months. Some examples include:
- Extra Debt Payments: More than just the required minimum on your credit cards
- Goals: Building up a buffer account (see step five), or saving toward a house down payment
Keep this list close at hand — you'll deal with it during higher-income months.
4. Combine Both of Expense Lists
Tally up the various forms of income you've actually deposited over the past month (not what you hope will come in) from your job, side gig, or self-employment income. Then decide whether this is a bare-minimum month, a high-earning month, or something in between.
Whatever the case, use your income to start by paying off your list of critical monthly expenses — rent, utilities, groceries, etc. If you still have money left over, you can use it to pay for items on your list of other monthly expenses, such as paying extra on your student loans. If another payment comes in partway through the month — and you're good for next month's basic expenses — use this latest payment to fund more of your other expenses.
5. Create a Buffer Account
If you have an irregular form of income, you may decide to create a buffer account during the higher-income months. Consider setting aside a little money here and there and then put it into a separate savings account or a special budget category in your accounting program. This step can really boost your ability to feel confident about your income, especially if it's irregular.
The idea is to have a bucket of money you can draw from during very low-earning months. This kind of account can be a great tool for smoothing out the extreme ups and downs of having multiple income streams. While managing multiple accounts can seem like a lot of work, using tools like your bank's mobile app can go a long way toward making it a painless experience.
Additionally, you can visit your local bank branch and schedule a financial wellness review. You'll work closely with a relationship manager to determine your short- and long-term financial goals and the best way to reach them. The goal is to take everything you determined in the steps above and create a personalized plan that will put you on the path to financial stability — even with an irregular income.
Over time, your irregular income budget might actually start to feel a bit more reliable with the help of consistent planning and monitoring.