.jpg)
« Spending Less: Why so much push-back? | Home | Website Template »
How to Budget with an Irregular Income
By admin | October 8, 2007
I get this question a lot and it is difficult to explain but really easy to do (those are the hardest things to teach on). An example to illustrate what I mean by that is trying to tell someone how to look at one of those 3-d art things. Once you see it you cannot help but look at it immediately however until someone else sees it you cannot explain it to them. But after they do they realize how simple it was.
It’s kind of like that, but I will do my best to try to explain things very simple and not too detailed because once you get the core of this you can figure out the details on what it looks like for your situation.
The Core Goal: To make an irregular income seemingly regular. We want to utilize our savings account to smooth things out on a monthly basis.
Step 1:) Figure out what your income is. For most people you know what an accurate average monthly income would be. Some months it is more, some months it is less. I would encourage you not to estimate your average too high and would rather you estimate low.
Step 2:) List all of your financial obligations, expenses, and goals, in order, based on how important they are to you. Remember, start with necessities and work you way down.
Hint: Your first 5 should be: Food, Housing, Transportation, Utilities, Clothing.
It is important to prioritize you list of outflows. Don’t forget to include irregular expenses, such as car tag fees, annual insurance payments, or other non-monthly expenses
The reason why we just listed our financial obligations is because on a irregular income I want to make sure that when money comes in it goes to the important items first.
Step 3:) After you this I want you to put amounts to these categories. This is the same as creating a budget (I will soon have a budget worksheet up in the financial tools section of www.chriskakaras.com). Remember to use the “average” amount of income when creating this budget and I would rather that “average” be on the low side rather than the high side for obvious reasons.
Step 4:) Use your checking and savings together. Let’s say your average monthly income is $3,000. So you budget accordingly to this amount (this includes retirement savings, charitable donations, vacation savings, etc.) One month you may bring in $4,000. In the past I know many on an irregular income that would just be thrilled and start spending the money and eating steak dinners cause they had the money. However the next month only bring in $2,000 and things become extremely tight and live on ramen noodles.
The goal here is to smooth that out. So when you bring in $4,000, live on the $3,000 a month plan and put that $1,000 into your savings account. Then the next month if you only bring in $2500 you can use $500 from last month to still live on the $3,000 a month plan.
Hopefully you got the basic concept of what I am trying to portray here. There are more nitty gritty details that need to be figured out, however, I wanted to steer clear of the nitty gritty for the very reason that I think understanding the core concept behind what I am trying to do here is more important.
Topics: Budgeting |
October 17th, 2007 at 6:19 am
# 5 Edition: Carnival of Everything Finance
# 5 Edition: Carnival of Everything Finance
Welcome to the October 15, 2007 edition of carnival of everything finance.
We had over 80 really good articles submitted for this edition.
Editor favorites have “*” on them.
Earning Money