Every individual’s income is not the same, their salary may be different based on various factors. Not just the monthly income but also the working timings may be different. Some may work hourly and some work on a commission basis. Based on all these factors the monthly income may be different and it may not be constant for a period of time. In the financial world, we call this irregular income and it is a very common factor.
It is very important to have a monthly budget whether your income is regular or irregular. You can budget with the irregular income and have a balanced expenses and income management by preparing a budget. The following are the steps to budget with irregular income.
- Budget with lowest monthly income estimate
- Write down all your expenses
- Flexibility is the key
- Estimate on last month’s income
- Prepare for unexpected expenses
1. Budget with lowest monthly income estimate
If you are earning irregular income then you should set up a budget with the lowest income that you earn. When you prepare a budget with the lowest income, you should adhere to the budget and spend within the limits.
The lowest budget income that depends on the monthly salary income. If you are working on commission basis or any other irregular income then you will have an idea for yourself.
Prepare a budget with the lowest income that you earn by doing this you can arrange for expenses from within that budget amount. If your earnings increase consistently over a period of time then you can prepare a budget within that parameters.
2. Write down all your expenses
When you write all your monthly expenses you will get an idea of how much your expenses are and what is the income required to manage these expenses. Since the income keeps fluctuating and there is no parameter to measure the income.
Having a list of monthly mandatory expenses will give an idea of what amount should be segregated towards necessity expenses and other optional expenses.
Essential expenses cannot be avoided or postponed and these expenses are meant for survival such as food, clothing, shelter, transportation and other utility expenses. Apart from these expenses on health insurance, life insurance, loan or any other debt repayment fall into the category of your budget.
Plan for these expenses in your budget. Whatever the amount of income that you earn in the given month funds should be allocated towards these expenses in your budget.
Since you have budgeted towards your priority expenses, later you can prepare a budget towards optional expenses such as TV streaming service, hobbies, hotel expenses, books subscriptions, gaming, shopping and other personal expenses.
If you have a habit of spending everything by card then it is very easy to track your expenses by checking the bank statements.
If you do not have such a habit and spend it with cash then think over and write down your expenses. Take help of your friends and family members to get an estimate of your expenses.
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3. Flexibility is the key
You can win budgeting with irregular income by being flexible and making the adjustments as and when you get paid. If you earned less in a given month then plan for the expenses within the lesser budget.
If you earned more than you expected then make sure to adjust the budget accordingly. When you earn more, repay the expenses that you postponed from the previous month. The flexibility ensures that you repay expenses and do not fall into the debt trap.
Here all you have to do is win with your earned income and effectively manage your expenses. Working on tight budgets is difficult but when you get to know how to manage, postpone expenses, managing credit then it becomes easier. It usually takes a couple of months to get work with a budget irrespective of what income you earn each month.
4. Estimate on last month’s income
For irregular income, preparing a fixed or flexible budget is a challenging task. It is best to consider last month’s income and living expenses. These are the real figures which will help you to create a budget.
It is a known fact that last month’s income may not be the same as this month. The monthly income can be higher or lower than that but when you prepare an estimated budget you will get an idea of your overall expenses. If you are falling out of budget then you can prepare a revised budget in the next month.
If you are within the budget then you can add funds towards your other expenses or emergency funds. Hence preparing a budget based on previous month income will give you realistic figures.
5. Prepare for unexpected expenses
The income that you earn is significantly different from month to month. You may earn more in a month and less in the following months. Expenses may come at any time which you cannot keep anticipating. If you have earned more in a given month than start putting that amount in a reserve as savings.
Do not spend more than you earned nor do not spend everything that you earned. Prepare food at home instead of going out for dinner.
Generally when unexpected expenses arise people tend to borrow and overcome such expenses. It is best to always rely on your savings for emergencies and unexpected expenses.
Create an emergency fund and allocate funds into that account each month. If you are having irregular income and If you earned more in a given month put that amount into an emergency fund. By having emergency funds you can fully prepare for unexpected expenses even with irregular income.
Living with an Irregular income is difficult as expense management becomes a challenge. By preparing a budget you can manage your expenses efficiently. Living with a regular income or irregular income, you always have to be good at money management. Money management is an art and taking effective steps towards managing money will make you reach your financial goals. Be honest with yourself and prepare a realistic budget that will help you to easily manage your expenses.