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How To Budget With An Inconsistent Income

January 25, 2021 By: Sweet Frugal Lifecomment

How to budget when you have an irregular income.

Have you been trying to budget with an inconsistent income and keep falling short?  Do not worry!  You are not alone!  This is a very common problem that people with irregular incomes experience.  When incomes changes from month to month it can be very hard to know how to budget.  I mean, if you don’t know how much money you’ll be earning each month, how do you decide how much to spend?  I get it, and I am here to help!  There are a few tricks you can use to make budgeting with an irregular income not only easier, but possible.  Today I’m excited to share my tips to help you learn how to budget with an inconsistent income.

First Things First

Before we get ahead of ourselves, let’s first do a quick run through and how to make a budget.  When it comes to budgeting, I recommend making a zero based budget. 

Zero based budgeting is really just a fancy term that means that when making your budget your expenses will equal your income.  Every dollar you will be earning will have a job, a category it will be put in.  This doesn’t mean you will be spending every dollar, just that you will find a category for every dollar in your budget.

This form of budgeting has helped my husband and I find so much financial success and limit our impulse spending.  If it’s not in the budget, we can’t buy it!

If you are new to zero based budgeting, or budgeting in general, make sure to grab my free Budget Cheat Sheets below to help you get started!

How To Budget With An Inconsistent Income

There are a few different tricks you can do when learning how to budget with an inconsistent income.  I suggest trying a few of these methods out until you find what works best for you and your income.

1.  Make your budget based on your lowest expected income.

My first tip to budgeting with a variable income is to make your budget based off of your lowest expected income for that month.  It’s always better to have to much money, instead of not enough, right?  Right.

When you budget off of your lowest expected income you can be confident in knowing you have budgeted enough money for your monthly expenses.  And, if your income ends up being higher, well, than that’s just icing on the cake!

To find your lowest expected income you will first need to review your income statements from the previous year.  Compare each month until you find the lowest amount you earned last year.

Use that amount of money as your base income for your budget.  

If throughout the month you earn more money than you your lowest expected, you can use that money to:

  • Pay off debt
  • Add to your Hills and Valley Fund (more about this below)
  • Save for retirement
  • Invest
  • Save for emergencies
  • Add to a sinking fund

2.  Budget off of the previous months income.

Instead of living off of the amount of money you will be earning this month, live off of your income from the previous month.

For Example:

Let’s say that you earn $5,000 in January, $3,200 in February, and $5,500 in March.

In February you will not budget or spend any of the $3,200 you will be earning.  Instead, you will be budgeting and spending the $5,000 you earned in January, and set aside your February earnings.  Then in March you will budget the $3,200 from February and save your March earnings until the next month.

Make sense?

Budgeting off of the previous months income can take some practice and self control, but it is a great way to ensure you have the money before you budget for the month.

If you find yourself constantly tempted to spend your monthly income, instead of the previous months, you might want to set up a separate bank account to store that money in until it’s time to use it.

  • Related:  How to Start Budgeting for Beginners

3.  Create a Hill and Valley Fund.

A Hill and Valley Fund is one of the most effective ways to budget with an inconsistent income.

The Hill and Valley Fund is based off of the “Hills” and “Valleys” many people with irregular incomes experience.  Some months your income will be big, like a Hill; and other months it might be a lot smaller, like a Valley.

Creating a Hill and Valley Fund is a way for you to help even out these variable income months.  A Hill and Valley Fund is similar to a sinking fund.

*A sinking fund is a fund you save into regularly, but only use when needed.

The best way to grow this fund is to save some of your excess money during a “Hill” month into this fund, which isn’t always easy, but so important.   Then, on the months when your income is low, a “Valley” month, you can use some of the money you have saved.

You can track your Hill and Valley Fund, similar to a sinking fund, within your budgeting programs.  Or, set up a separate banking account to keep this savings in.  Whichever works best for you!

Stay Consistent

It can be stressful when trying to learn how to budget with an inconsistent income.  One of the most important things to remember is to not let that stress deter you from budgeting.  Keep working your budget, trying different methods, and using your Hill and Valley fund and you will see success.

Try these three steps when making your next budget, and remember to stay consistent.  Consistency is key to living within a budget, no matter how much money you earn.  You can do it!  I believe in you!

 

Related Articles:

Extreme Ways to Cut Your Budget

How to Get Your Spouse to Budget

The Best Frugal Living Tips You Need to Know

Pin For Future Reference:

budgeting tips for irregular budgets - how to make a budget with variable income

budget on irregular income - budget tips

I hope this article helps you know how to budget with an inconsistent income!

How to Make a Zero Based Budget

January 14, 2020 By: Sweet Frugal Lifecomment

How to set up a zero based budget, for beginners.

I have been getting so many questions lately about how to set up a successful budget.  I decided it was about time I talk about this important subject!  Today, I will be teaching you exactly what you need to do to set up and maintain a zero based budget.

What is a zero based budget?

A zero based budget is a form of budgeting where you budget all of your expenses to equal the same amount as your income.  The simple formula is:  Income – Expenses = 0.

Why do I need a zero based budget?

This form of budgeting forces you to think about every single dollar.  When you have to scrutinize exactly where, how and when to spend each of your hard earned dollars you will look at your spending differently.  A zero based budget will keep you on track with your money goals and encourage you to spend less, while saving more.

how to make a zero based budget

How to set up a successful budget:

Setting up a zero based budget is really easy once you learn the basic steps.

Step 1:  Write down your income.

Write down all the income you expect to receive over the next month.  Don’t forget to include any money you might receive from side hustles!

Need a budgeting worksheet?  Download one for free by clicking the link below!

Step 2:  Write down all monthly expenses.

This is the most time consuming part of making a zero based budget, but don’t let that scare you away!  You need to write down every expense you will be making over this next month.  And when I say everything…I really mean everything!  That $2 shake you get on your way home from work???  Yeah, include that in your expenses.

Fixed Expenses

First, write down all of your “fixed expenses.”  A fixed expense are the bills that cost the same amount every month.  The most common fixed expenses you should include in your budget are:

  • Mortgage or rent
  • Insurance, including health, car, home, life
  • Utility bills
  • Debt payments

Variable Expenses

Next, you will write down all of the variable expenses you will have throughout the month.  Variable expenses are the items you spend money on regularly, but the amount changes month to month.  Here are a few of the most common variable expenses:

  • Groceries
  • Entertainment
  • Eating out
  • Fuel
  • Clothing
  • Hair care

Seasonal Expenses

Now, write down all seasonal expenses.  Seasonal expenses are those expenses you will have to pay sometime throughout the year, but usually not every month.  Don’t forget these seasonal expenses in your budget:

  • Home repairs
  • Christmas
  • Birthdays
  • Tuition
  • Dental/Medical work
  • Vacation
  • Property taxes
  • HOA fees

It’s so important to plan ahead for these expenses.  If you start saving for them now, you will already have the money set aside when the time comes.

The best way to plan for seasonal expenses in advance is through sinking funds.  A sinking fund is like a savings account within your budget.  You will add to these funds each month, and then when that home expense comes, or your HOA is due, you will already have the money saved for it.  You can learn all the nitty gritty about sinking funds here.

Master Your Money Super Bundle 2020 

Savings

Don’t forget to include setting aside money for saving.  I highly encourage you to always be saving a little bit here and there.  You might want to be saving for retirement, a rainy day, or college.  Don’t forget to include these in your monthly expenses.

Step 3:  Subtract Your Income from Expenses To Equal Zero

Once all of your income and expenses have been written down you will want to subtract the income from your expenses.  The goal is to get the number to equal zero.  This might take some trial and error, but you will find what works for you.

If your expenses are higher than your income, try to rework your budget and find areas to cut.  Here are 5 things we cut from our budget to save thousands each year.  Don’t think you have anything left to cut?  Check out these ways to cut your budget when you don’t have anything to cut.

If you find your expenses are lower than your income, this is great, but you will still need to keep working the budget.  Every dollar in your budget needs a job, don’t leave any of them sitting around with no where to go!  If this is the case for you, find a category within your budget for those extra dollars.  Add more money to a category, save the extra for a rainy day, or use it to pay more towards your debt.

Step 4:  Track Your Spending

Now that your budget is ready to go, it’s time to track your spending!  Throughout the month you will need to write down everything that you buy.  Yes, everything!

Tracking your spending is important because it helps you see if you are staying within your budget….or if you are overspending in certain categories.  I have also found that when I know I have to write down my spending….I think twice before spending!

  • Related:  How to Get Your Spouse to Budget

Step 5:  Check In With Your Budget

You must be checking in with your budget regularly.  I recommend taking a quick glance at your budget at least once every day.  Get into the habit of checking your budget before making any purchase.  This helps you be sure that you have the money available.

Have a more thorough budget check in once or twice a week.  This thorough check in will be the time to look through your budget and make sure your spending is right on track.  Your weekly check in should take about 15-30 minutes.

Step 6:  Close Out the Budget

It is now time to close out the budget!  This should be done at the end of each month (or budgeting period.)

Closing out the budget simply means to make sure all spending is accounted for.  You will look through your spending tracker, fill out your budget to report how much you spent in each category, and make adjustments as needed.

This is an important step to learn more about your spending habits.  If you find yourself continually going over budget in groceries, you might decide you need more money in that category.  Perhaps you notice a lot of overspending on clothing each month, you can use this knowledge to make a plan to spend less.  Thrift shopping or using cash envelopes are both great ways to keep the clothing budget down!

At the end of each month you will rework each of the 5 budgeting steps.  This is the time to rewrite your budget and assess your needs and living situation.  Your budget will change from time to time, and that is necessary!

Be willing to work through these changes and put in the work to keep your budget properly maintained.

The goal is to have the amount spent equal the amount budgeted.  Through time and adjustments, you will find what works best for you!

how to make a budget - what is a zero based budget

Budgeting FAQ

How much should I put into each budget category?

I like to follow Dave Ramsey’s advice when it comes to budget categories.  You can find how much he recommends in each category here.  We don’t follow these suggestions completely, but they make a great guideline to help us budget.

What should I do if I go over budget?

It happens to all of us!  Don’t get discouraged if (and when!) you find yourself in this situation.  There are a few things you can do to fix your budget.

  1. Use money from another category.  If you have already overspent in groceries, but still have money left in your entertainment category, you can use that entertainment money to cover the cost of your extra grocery spending.  This will mean less entertainment for the month, but it might be necessary to keep your budget on track.
  2. Sell something.  Look for items in your house that you can sell right now to earn some money.  I highly believe everyone has a few things they could make money from.  This extra cash can be applied to the area you overspent in.
  3. Side hustle.  Try to find a way to earn extra money to cover your extra expenses.  Need a few ideas?  I have a great side hustle list here.

The most important thing is that you find a way to cover that overspending.  Do not pull out a credit card.  You can fix this!

What should I do if I go under budget?

The very first thing you should do if you go under budget is give yourself a big ‘ol pat on the back.  Be proud!  That’s great!

But.  We don’t want to leave that hard earned money just sitting around.  Give it a job!

Here are a few suggestions (in order of priorities) for your extra cash:

  1. Pay extra towards your debt.
  2. Build up your emergency fund.
  3. Put it in one of your sinking funds.  Perhaps a vacation or car you might be saving for.
  4. Reward yourself.  Treat yourself to something fun!  It’s ok to use that extra cash on you!

How can I make checking my budget a habit?

Habits are so hard to form!  If I’m being completely honest with you, it took us years (yes, years) to form a good budgeting habit.  I hope it doesn’t take as long for you!  Here are a few suggestions to make budgeting a habit:

  • Set an alarm on your phone.  This alarm will be your daily reminder to check your budget and stay on track.
  • Schedule it.  Write “budget” write into your daily planner/schedule.  Set aside a time each week that is your budget time, and no matter what stick to this schedule.  Sunday evenings are a quiet time in our house, so we use it to look over the budget.

 

It’s now time for you to make your zero based budget!

how to make first budget

Hello! I’m Melanie!

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