Budgeting can feel like a challenge for anyone, but if your income changes from month to month, it can seem downright impossible.
Fear not; we’re covering six things you can do to help give yourself more financial stability and lower your stress about having a variable income.
Start With Data Collection
Before you bother with your budget, gather intel so you can build back better. This usually involves tracking your expenses (without adjustments) for anywhere from one to three months. Don’t just look at the total; look at the source and the timing. The goal is to identify where your income is going in the first place.
Calculate Your Minimum Expenses
Once you have the numbers, you’re ready to start crunching them to establish your minimum or baseline expenses. Your baseline expenses are the non-negotiable costs you have to pay every single month, regardless of your income. Knowing the absolute minimum you need just to stay afloat can help rein in any overspending prematurely while giving you a target to hit every month.
Funnel Cash Into a Buffer Account
You’ve heard of emergency funds before. Those are accounts that are incredibly useful for emergency expenses. But if you have a variable income, it can also help to have a “buffer” account that’s more for “mini” emergencies.
This is mostly relevant to those who are struggling to meet their minimum expenses (or worried they might) and want to set money aside for times in the year when their income is projected to be lower. Having this life raft can not only give you peace of mind during dry spells, but also make you less reliant on an emergency fund if you have one.
Plan for Taxes
If you’re self-employed, you’ll owe a lot of this income at the end of the year, come tax time. Don’t let it catch you by surprise; make it a habit to set aside a fixed percentage of every payment you receive into a separate savings account for taxes. A common guideline is to save 25-30% of each paycheck, but anything is better than nothing.
Review and Adjust Regularly
This is good advice for everyone because life isn’t static. However, those with variable incomes will likely need to edit their budgets more frequently. Embrace that and schedule time with yourself, ideally once a month, to confirm that everything’s still working as intended. This ensures that your budget is as accurate as possible compared to what’s going on in your life.
Use Tools To Help
If traditional budgeting isn’t for you, then you’ll probably benefit from an app or software that’s more tailored to your needs. Tools can automate the tracking process, categorize expenses, and give you a clear visual of your financial health, making it easier to stick to your plan.
Many of these tools have features that allow you to set up different budget scenarios for high and low-income months. They can also provide real-time alerts on your spending and help you forecast future finances based on your historical data.
