Fluctuating incomes are a part of life for many people, particularly those who are self-employed and those whose jobs pay hourly wages and whose schedules vary from week to week. You tend to live “feast or famine.” That is, you probably bring in a lot of money in some months and less in other months. You may have busier times, and times which are slower in your business or job.
The idea with a fluctuating income is to plan ahead for the times when you don’t bring in much income by saving during the months that you do. These steps will help you do that, and to create a written budget plan that reflects this:
1) Estimate your total annual income. If you’ve been self-employed or otherwise had a fluctuating income for more than a year or two, use the last two years as a guide. This is a good figure to use if you expect that your current year’s income will be approximately the same.
It’s advisable not to over-project. Keep your figure on the low side. It’s much easier to adjust your budget later on for too much money than for too little.
2) Now divide that figure by 12. The total that you arrive at will be the figure that you’ll use each month as your monthly income.
3) Now, identify expenses that are the same from month to month. This typically includes rent/mortgage payments, loan payments (car, student loans) and minimum credit card payments. Most people include the cost of groceries in this category.
4) Next, make a list of all of the other things that you typically spend money on throughout the year. These are the things that fluctuate in cost, and also the expenses that don’t necessarily occur monthly (like school fees, clothing needs, etc.).
5) Draw up a budget plan. List your monthly income at the top of the page. (You should have one page for each month of the year.) This is the figure that you arrived at according to step 2.
Next, write down all of your regular, recurring, non-variable monthly expenses (as you determined in step 3). Write down how much you pay for each.
Then, write down all of those other, variable expenses. You may want to lump several of them into one major category. For example, you might list school expenses and extra-curricular activities fees in the same category.
Finally, allot a budget amount to each of those categories. To determine this, estimate how much you’ll spend on each category over an entire year and then divide that figure by 12 months. This is how much you’ll set aside each month for those needs.
Living by your budget: The idea now is to put away whatever you bring in each month into a bank account. At the beginning of each month (or whenever your budget month begins) you’ll withdraw or set aside the amount as determined in step 2.
Anything over and above that amount will be left in your account and carried over to the next month. During busy months you’ll have excess to carry over into the following month. It is this “carryover” that will help top you up on the months when you don’t bring in the full amount that you’ve budgeted for.
Of course, if you’re just starting out at budgeting and this happens to be a lean month, it may take a couple of months or more to get on the right track. That’s okay.
Until then, do your best to shuffle funds around to cover the shortfall. You may have to cut back on grocery spending, drive less so you’ll save on gas or put off a monthly payment until the day it’s due.
Try to avoid using your credit card to keep up with your budget. If you do have to use it, make sure that you budget enough money to pay off your new charges during those months when you’re making more money.