The Introduction: This article aims to provide tips on how to budget for individuals with irregular income, such as freelancers or self-employed workers. It includes the issues arising from irregular income and effective ways to manage this financial situation.
Determining Your Starting Point
To determine your starting point, you should look at your financial records for the last few years and identify the highest amount you earned in a specific month and the lowest amount you earned in a specific month, as well as the average. Focus on the lower figure, that is, the lowest amount you earned in a specific month.
Creating a Budget
Use a financial worksheet to create a budget based on the lowest amount you earned in a specific month over the past two years. You can assume that you will earn a bit more than that each month going forward, but your budget should be based on the minimum you earned to maintain a safety net.
Planning Your Goals
You should create a plan for how to use any excess money. Based on the lowest amount you earned over the last two years, you should create a plan for what you will do with that excess money. Would you like to save that money to buy your next car in cash? Would you like to open savings accounts for your children’s education? Would you like to create a large retirement savings account or use that money to pay off debts? Identify your goals and use all excess money to achieve them.
Allocating a Budget for Each Payment or Deposit
When you receive a payment, divide the amount based on your budget categories. For example, suppose you created a budget that has five categories. You decided that you are willing to spend 35% of your funds on housing, 15% on debt repayment, 10% on savings, 15% on transportation, and 25% on everything else.
Building a Large Cash Cushion
If you have irregular income, a cash cushion is your best friend. By maintaining an acceptable balance in your account, you will be able to handle the months when client payments are slow. A cash cushion differs from an emergency fund. The cushion exists solely to ensure that you can pay all your bills while you wait for irregular income to show up in your mailbox. On the other hand, an emergency fund is a separate account that should only be touched in the event of the worst-case scenario.
Source: https://www.thebalancemoney.com/how-can-i-budget-with-irregular-income-454026
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