How To Create a Budget on an Irregular Income

Senior African American couple paying bills

To be successful financially, having a budget, and sticking to it is a must! A budget will tell you where all your money is going, and allow you to show your money where you want it to go rather than just allowing it to slip away from you! It will help you make priorities and reach your financial goals. This works great if you know what your income will be every month, however not all of us quite know what our income will be every month because part or all of our income is based on commission and other factors which cause our salary to change from month to month, so it can be quite difficult to budget an unknown amount of money, but it can be done, and here’s how you do it!

The first thing that you need to do when budgeting on an irregular income, is to list all of the things that you would like to do with the money in a month. This will include everything, paying for groceries, buying gasoline, paying the mortgage, your insurance bill, putting money away for retirement, and you name it. This can even include outlandish things that you know you’ll never get to, such as buying a new car.

The second thing you need to do is prioritize. Write a one besides the most important thing, which is buying groceries. Write a two next to the second most important thing, which is paying utilities. Write a three next to the third most important thing, which is paying rent. Four is groceries, and five is some necessary clothing. After those items, keep numbering down from most important to least important. Now when you get money, you can start by spending money for the items on the top and go from the most important to least necessary. That way, all of the important stuff will happen first, and the less essential items are secondary.

If you have a very irregular income, such as if you work in real estate solely based on commissions, you can do something else, you could make nothing one month, $20,000 the next month, and then nothing for the next two months! It’s not an option to quit eating and driving for a month, so we have to do something different here. Figure out what your average income a month is, and when you make any more than that a month, put it in a separate checking account, and keep it for when you don’t make as much money in another month. When you have a month which is under your average, take the difference from the average in your other checking account. This is your “hills and valleys” fund, which helps flatten out your income so that you can more predictably spend money every month.

Budgeting on an irregular income can be more complicated than on a fixed income, but it can be done, and it is worth it!