Tips to Make an Irregular Income Work For You

There are many people who have to deal with a fluctuating income. For example, freelancers face the struggle of handling the ups and downs of an income that isn’t steady. The same thing goes for those whose salary is tied to a commission. When it comes to creating a budget, things can get a little tricky when you have to handle a fluctuating income, and it can certainly be a frustrating situation if you do not handle it properly. Here are a few tips to follow when it comes to following a budget with an irregular income.

Project Your Income

It is recommended that you base your budget on the average monthly salary that you’ve made of the past 3-12 months. If you are like many people who have a fluctuating income, you will find that your income has declined over the past several months due to the economy, and so if this is the case you may want to use your minimum monthly income and not your average.

Be Thrifty

It is important to establish a thrifty mindset from the beginning. One of the most important things when it comes to dealing with an unstable income is adopting a thrifty lifestyle. To do this, take some steps in order to cut your spending down to a reasonable level. Try finding alternatives to expensive things that you spend unnecessary amounts of money on. For example, try Hulu instead of paying for cable television.

Prioritize Your Spending

It is a good idea to create a list of important expenses that you must spend your money on. Try listing these expenses from most important to least important. While doing this understand the difference between importance and urgency. Once you get your paycheck begin at the start of the list and pay off your most important expenses. After this is done you can work towards paying off the less important ones.

Build a Savings Buffer

As someone with a fluctuating income, you should try to set aside money into a rainy day fund. In case your income drops below a certain point, you can use this emergency fund in order to provide you with a supplemental income. If you build up your rainy day fund enough you can use it in order to ride out any financial downfall. Keep in mind that when you have fluctuating income, the bigger the rainy day fund, the better.

Resist Inflation Due to Lifestyle

With a fluctuating income, you will generally have really good months where you make substantially more money than you usually do. During this time you should try not to increase your spending. Overspending during good months is one of the easiest things to do with a fluctuating income, as having a little extra wiggle room can tempt you into spending more than you should. Keep in mind that during a good month, you should protect yourself in preparation for a lean month.

Consider Living Off of One Income

If it’s possible and it works for your situation then you should consider living off of one income only. If your partner has a steady income and you have a fluctuating income then using only your partner’s money in order to meet the necessities may be a financially savvy move. This way you can use your irregular income for extras as well as put the rest into a savings account. Although this doesn’t work for everyone, if it works for you it can be a great means of budgeting your money. This is because it keeps your finances simple and sets an easy guideline to follow, which allows you to save the maximum amount of money.

Finances - 26 Jun, 2014 - No Comments