It is quite a challenge to look at budgeting tips when you are dealing with an erratic source of income. There is no question that it is already difficult to budget with a regular source of income. What more if you are dealing with irregular pay? It can be that the amount you take home differs from one month to the other or that the date you get your pay is not set on a regular timeline. There are times as well where you have to deal with both.
This is an all too common scenario for people who choose to be self-employed, work with commissions, tips, or simply choose a freelancing career. The pay is not regular and there are times when you can go for months without any funds coming in. This financial situation makes it challenging to pin down some long term financial goals.
If you are struggling with an irregular income, you are not alone. According to a study by the Federal Reserve, about a third of US adults in 2016 had irregular pays. That is quite a big percentage and budgeting is a major concern. For one, putting together a budget is based on expected numbers and that is what makes it a bit complicated.
So here are a few budgeting tips you can explore to help you navigate through your finances a little better.
Focus on your reserve funds
At this point, you might have heard about the importance of having reserve funds in your financial arsenal. This combines your emergency fund and rainy day fund which both helps you address unexpected financial situations. From a broken light bulb in the basement to car battery replacement and even when you get sick and unable to report for work for a few days.
All those scenarios above are [perfect examples of why you need emergency money with you. Some might seem harmless while others will really put a dent in your funds. But the fact that there is no way to know when they will happen makes them stressful situations. The only way to be proactive with it is to save up.
This is easier said than done when you have an irregular income but this is one of the budgeting tips you need to seriously consider. For one, you have a greater need for it because you never know how your finances will be in the coming months. You should also consider the impact an emergency will have on your delicate budget.
Though tough, you can start with a small amount every month. The idea is to create the habit of saving up for it so it gets easier over time. You gradually increase the amount you set aside each month. You will soon be able to set aside a considerable amount for your reserve funds to help you get through some of the toughest financial emergencies. The last thing you need is to have an irregular income and be in debt at the same time.
Budget for baseline expenses
It might sound too confusing and technical but what this is is simply understanding how much you really need every month. This is bare-bones budgeting where you only take into account the expenses that you really need. It should start from food, clothing, utilities, rent, and other items which are non-negotiable.
One of the budgeting tips you need to remember at this point is that you might think other “wants” can be included. Take food, for example, you might include takes outs or eating out in your baseline budget. You might think as well that new clothes every week is part of your clothing allowance.
As you compute for your baseline expenses, keep in mind that you need to stick to the essentials. These are the things you cannot live without. As you put together your baseline cost, you get the idea how much you need to have at a minimum every month to survive. You then go from there and aim to earn at least that amount every month.
Work on a steady paycheck
The biggest challenge of an irregular pay is consistency. You can go for weeks and even months without getting anything. Then the next day, receive a big amount from commissions or a deal going through. This setup can put your budget out of order. It would make it very challenging to focus on retirement, investments, and even your reserve funds.
One of the things you can do is to devise a way to have a steady paycheck to at least cover your baseline expenses. As you put in all your income in one account, cut yourself a check every month from that account for your expenses. This will help you have some sense of order in especially when it comes to managing your budget.
Leverage the power of technology
At this day and age, it is hard to go over budgeting tips without mentioning the value that technology has played in the financial sector. Down to consumer needs, technology has now served as a great enabler and a reliable tool for managing finances. From apps Mint and Acorns and even with financial institutions offering online services, budgeting should now be a lot easier.
With all these technological hacks in personal finance, the challenge is finding out which one can use. You don’t have to download all the apps hoping they work. Remember that they are all just a tool to make your budgeting a little bit easier. They can help you monitor your fund level, remind you of payments, or even save up a small amount every week. Bottomline is that for them to work, you need to put in the work as well.
Take care of your health
It might not be in line with all the previous budgeting tips but if you have an irregular pay, this can be a big deal. For those that hold regular day jobs, they could have different types of leave credits at work which they can use throughout the year. It can be a paid vacation leave, sick leave, and even maternity or paternity leave. If you have an irregular income, chances are you do not have any of these.
This means that if you get sick and not able to put in some work, you lower your chances of getting any income at the end of the week or month. It is a double black eye for you as you get sick and you can’t earn as well. This is why it is important for you to take good care of your health and learn not to overstretch yourself.
This is a common problem with freelancers as you try to put in as many hours of work as possible to be able to put food on the table each month. You put in a lot of hours a day not knowing that it is starting to take its toll on your body. Learn to pace yourself and put in the required hours of sleep. This will help make you more productive at work the next day.
There are a number of great budgeting tips to consider for people with irregular pay and the important thing is finding out which works for you.