When making a budget, it’s essential to know how much you make and what you spend. It is also essential to track your expenses. It will help you build an accurate picture of your average income and expenses. It’s also important to know when your income and expenses will fluctuate. If you know how much you spend every month, you can plan your spending accordingly. If you don’t have enough income to cover all of your expenses, you may need to cut your entertainment spending to compensate for the low-paying months.
How to Make a Budget With an Irregular Income
Add your expenses and figure out their total monthly cost.
The traditional method of making a budget is to divide your monthly income by your total monthly expenses. To make a budget with an irregular income, you should add up all your fees and figure out their total monthly cost. You can use this average monthly income as a baseline and move your money from one category to another. To determine the amount you’ll need, you can divide your income by twelve if you have an irregular income.
Make sure you have emergency savings.
The trick to budgeting with an irregular income is to make sure you have an emergency savings fund to fall back on in the event of a severe or prolonged month of lower-income. It’s vital to have a cushion of money in case of a sudden change in your income. When you don’t have any money to pay for a crisis, a small cash reserve can be a great help.
You should have a cushion to cover your essentials.
If you’re self-employed, it’s vital to have a cushion to cover your essentials. An extra cash cushion can help you handle slow-paying clients and avoid overspending on groceries and discretionary items. When you’re self-employed, you won’t get a regular paycheck every two weeks. Instead, you will receive payments that are more than half of your monthly income.
Estimate out how much you earn in a month.
Fortunately, the trick to budgeting with an irregular income is not difficult. By figuring out how much you earn in a given month, you’ll be able to see exactly how much money you’re spending in any given month. You can always add more money to your monthly income if you’re not sure what you’re doing. The same goes for other expenses.
Identify the various expenses.
When you’re working as an independent contractor, you’ll need to make a budget for the basic expenses. Identify the various costs and priorities you’ll have. Include things like debt payments and gym memberships. For the more essential, non-essential expenses, such as entertainment, clothing, and health insurance, should be listed first. You can cut down on non-essential expenses later and plan for the future.
Determine the amount of taxes you pay.
The last step to make a budget with an irregular income is determining the amount of taxes you pay. It’s essential to keep in mind that some months will be better than others and that you’ll need to adjust your budget accordingly. Moreover, you’ll need to allocate 20% to 25% of your annual income for taxes. For the rest of your monthly expenses, you can use the rest of your funds to pay these estimated quarterly taxes.
