The Irregular Income Earner

I have briefly mentioned this in a previous post a few months back (go here to read it) when I talked about budgeting in general.  Today, as per request, I want to go into more detail about budgeting when you have an irregular income.  As I've said earlier, it's actually more important for you to have a plan because your income can vary so widely.  Whether you are paid on commission or seasonally this post is for you.


So here's what I suggest.  Start by calculating the base income that you need to meet all you basic needs and minimum payments.  Then go over your last year of earnings.  What is the lowest amount you earned in a given month?  If this amount is lower than the minimum you need, start here.  I suggest having a savings account specifically for the 'hills and valleys' you see in any given year.  This is separate from your emergency fund.  Consider it a reserve account for those months you don't make enough.  On months that you make more than enough, you would replace money that was taken out in a previous month. 


You might be thinking,  what do I do if I have several low months in a row and my account runs dry?  In this case, you have two choices.  You can find another source to boost your income or you can reduce your outgo.  If you find yourself still with not enough, be sure to remember the four walls principle.  Prioritize food, housing, utilities and transportation- the basics.  You might face the reality that not everyone will get paid.  Draw a line where the money runs out that month because that's all that you can do.  Obviously, this is a temporary measure because you could never go on like this indefinitely.  If things get that bad, you need to solve your income crisis.  No amount of budgeting will make up for a lack of income.  There's only so much you can sell or cut back on.  You'll certainly need to make a plan for the short term, but long term you'll need to plan for what you want to do with your life.  Does this involve further training or schooling of some sort?  Make a plan and do it.


Now let's look at the times of plenty.  The natural tendency is to get sloppy during these times.  These are the times to build that reserve account and pay down debt aggressively.  Don't fall into the 'we need it' or 'we deserve it' mentality.  I'm reminded of the story of Joseph and The Pharaoh of Egypt in the Old Testament.  Remember there were 7 years of plenty before there were 7 years of famine.  Egypt was the only nation prepared and were able to share with their neighbors because of it.  Preparation is key, especially if you have an irregular income.  It can be a  little more challenging, but it is doable.  Neither good times nor hard times last forever.  Chances are you will experience both many times throughout your life.