Even if your income is irregular, it is possible to create a budget. These simple steps show you how to budget with a fluctuating income.
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I recently wrote about basic budgeting for the busy mom. Those tips for creating a zero-sum budget work really well for most people. But one of the more common excuses I’ve heard in regards to budgeting is, “I can’t do a monthly budget because my income is different every month.” I get it, I really do. For the first several years of our marriage, my husband had an irregular income. It varied pretty significantly from month to month, which required a change in how we approached our monthly budget.
Ever since discovering Dave Ramsey’s Financial Peace University and determining to get out of debt, my husband and I create a monthly budget as part of our normal routine. I’m going to walk you through the very basic steps of how to budget with a fluctuating income.
Many individuals and families earn an income that fluctuates from month to month. Many times, this includes individuals who are self-employed or work in a commission-based business. Other times, this may include employees who are paid a set hourly rate, but whose hours are not guaranteed to be the same from week to week. Whatever the reason, know that it is possible to have a budget that suits your unique situation. Simply follow the easy steps below to get started! Download your FREE Irregular Income Budget printable here.
Budgeting on an Irregular or Fluctuating Income
Using the Irregular Income Budget printable, list your monthly expenses in order of importance.
Consider the question, “If I only had enough money to pay one thing, which one thing would I pay first?” That should be at the top of your list. Then ask yourself, “If I only had enough money to pay one more thing, which thing would I pay next?” In this post, I discuss the most important items on your budget that should be taken care of before anything else. That same principle applies here, too. You should not list credit cards or other debts as a top priority above food, shelter, clothing, and transportation. Continue down the list, writing all of your expenses according to their priority. You should still include giving and saving on this list.
In order to have a complete list of your financial obligations, it’s important to organize your bills, which I discuss in detail here.
As you get paid during the month, use your money to pay for the items on your list, starting at the top and moving your way down.
Pay the most important things first, as you get paid. Once you have spent your money, you are done until you get paid again.
It’s important to note here that you should remain vigilant in discerning what is really the most important.
It’s easy for things to “seem” important that really aren’t. Something may come up that you really want to do or buy, but if it is not at the top of your list, you can’t spend money on it until you have taken care of the higher-priority items.
That’s it! Pretty simple, isn’t it?
An Alternative Method
If you are a dual-income family, with one income that is fixed and one income that is irregular, you may opt to create a regular Monthly Budget based on the fixed income and create an Irregular Income Budget based on the fluctuating income. In this case, your highest priority items can be included on the regular Monthly Budget, with lower-priority items listed on the Irregular Income Budget. This is what my husband and I did.
Stick With It
As you can see, the process for budgeting with an irregular income is a little different, but actually quite simple. Keep in mind that it may take a few months to really get the hang of things, just as it does with the regular monthly budget process. Creating a budget for a fluctuating income will ensure that you take care of the most important things every month and will help you to have a plan for your money.
Do you have an irregular income? What type of budgeting method have you used?
FAQs
Pay Yourself a Salary
Pick a specific day each month and deposit a set amount from your business account into your personal checking account to cover your monthly expenses and discretionary spending. (You should pay for all personal and non-business-related expenses out of your personal checking account.)
How to budget when you have a fluctuating income? ›
How to Create a Budget When Your Income Fluctuates
- Define your essential monthly expenses. ...
- Track your spending meticulously. ...
- Estimate your lowest monthly income. ...
- Identify non-essential expenses. ...
- Consider building an emergency fund. ...
- Keep your budget accessible. ...
- Don't get discouraged — keep budgeting! ...
- Keep your cash safe.
Pay Yourself a Salary
Pick a specific day each month and deposit a set amount from your business account into your personal checking account to cover your monthly expenses and discretionary spending. (You should pay for all personal and non-business-related expenses out of your personal checking account.)
What is the 60/40/30 rule? ›
60/40. Allocate 60% of your income for fixed expenses like your rent or mortgage and 40% for variable expenses like groceries, entertainment and travel. 30/30/40.
What is the 60 20 20 rule? ›
Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings. Once you've been able to pay down your debt, consider revising your budget to put that extra 10% towards savings.
What is the 50-30-20 rule? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
What is the 70% rule for budgeting? ›
The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.
How to manage $4000 a month? ›
Applying the 50/30/20 rule would give you a budget of:
- 50% for mandatory expenses = $2,000 (0.50 X 4,000 = $2,000)
- 30% for wants and discretionary spending = $1,200 (0.30 X 4,000 = $1,200)
- 20% for savings and debt repayment = $800 (0.20 X 4,000 = $800)
Benefits of Paying Distributions
Those owners taking a wage will pay half of the 15.3% of their salaries. The half paid by the company will also be a write-off as it goes against overall profits. Any amount given as a distribution above the owner's salary will not be subject to employment taxes.
What is the most tax-efficient way to pay yourself? ›
For most businesses however, the best way to minimize your tax liability is to pay yourself as an employee with a designated salary. This allows you to only pay self-employment taxes on the salary you gave yourself — rather than the entire business' income.
70/15/15 Budget
With this budget rule, you'll spend 70% on needs, 15% on wants, and 15% on savings. This could work well for a family that has a lower income with a high cost of living.
What is the 70 10 10 10 rule? ›
This principle says for each dollar you earn or are given, you should save 10%, share 10%, invest 10% and spend 70%. A key part of this formula is “paying yourself first” which means the first 30% of your earnings are paid to you, for your benefit … for your retirement, for emergencies, and for sharing with others.
What is the realistic budget rule? ›
The 50/30/20 approach can be a helpful way to get started with budgeting. It's a simple rule of thumb that suggests you put up to 50% of your after-tax income toward things you need, 30% toward things you want, and 20% toward savings.
What is the 80 20 rule strategy? ›
What's the 80-20 Rule? The 80-20 rule is a principle that states 80% of all outcomes are derived from 20% of causes. It's used to determine the factors (typically, in a business situation) that are most responsible for success and then focus on them to improve results.
What does the 50 30 20 financial rule of thumb suggest that 20 percent of income be used for? ›
The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.
Is 60% of income on needs too much? ›
Key Takeaways:
The 60/30/10 budgeting method says you should put 60% of your monthly income toward your needs, 30% towards your wants and 10% towards your savings. It's trending as an alternative to the longer-standing 50/30/20 method. Experts warn that putting just 10% of your income into savings may not be enough.
How do you deal with inconsistent income? ›
How to Budget with an Irregular Income
- Map out your expenses. Use a piece of paper or create a simple spreadsheet and write down literally all of your expenses so you can keep track of them. ...
- Forecast your upcoming income. ...
- Save extra income. ...
- Assess your cash flow.
How to Budget on an Irregular Income
- Figure out what your baseline monthly expenses are. ...
- Calculate the monthly average of your discretionary spending. ...
- Plan to save and build an emergency fund. ...
- Determine your average income. ...
- Save the excess. ...
- Try a zero-sum budget.
Income is considered to be “fluctuating” when the amount is different for the months of the payment quarter. This includes when the AU/household has income for one or more months of the quarter and zero income for the remaining months of the quarter due to income starting or stopping.
How to live on inconsistent income? ›
Tips for Living Consistently on an Inconsistent Income
- Be meticulous about your expenses. You need to know the absolute minimum amount you need to live each month. ...
- Stay on budget. ...
- Live on the money you have, not the money you expect to have. ...
- Use technology to simplify your life.
