Many people find themselves in this situation.
You may have gone to one income after having a child or you may rely on seasonal work. You could be self-employed and the best way to live on a fluctuating income is to be in control of your finances and really know where your money is going.
I’ve been there. So I pretty much know what I’m talking about.
Here are my top nine tips on budgeting on an irregular income.
Base your budget on the lowest paid month in the previous year. That way you know the worst-case scenario and can work around that figure. If you are planning the budget as a couple or a family, make sure you have each person involved so that the budget covers everyone’s needs.
2. Understand your expenses
Create a list of as many expenses you incur daily as possible — from a takeaway coffee to your groceries to a new pair of shoes. Be honest with yourself and don’t underestimate your spending, particularly on groceries.
3. Prioritise your expenses and know your baseline
Split up your expenses into the “must-haves” – the absolute essential things you cannot live without, for example food, water, housing, utilities and transport. This also becomes your baseline. The “would-like-to-haves”, for example new clothes or a night out at the movies or restaurant and the “luxuries”, for example holidays, which will form your savings.
As a rule of thumb, allocate 50% of your monthly income to essential expenses, 30% to your wants and 20% to savings.
4. Don’t have access to all your money.
Set up separate bank accounts with only one having a debit/credit card attached. This is your spending account. In another account, one that you never touch – set it up so that your pay goes in and all bills have direct debits. This makes sure that all bills are paid on time (so no late fees). You then set up a direct transfer into your spending account, like a salary. This will be a fixed amount each month to cover your baseline, minus the bills you have set up for direct payment. You could even have a third bank account, again with a direct debit, to put away some money for emergencies or use your second bank account to accumulate savings.
5. Tweak your budget each month
By basing your month’s budget on the previous month, you will get a better picture of what needs to be accounted for. There may have been an unforeseen expense or that you spent more, or less, on an allocated expense.
6. Pay out all credit cards and cut them up.
If you are budgeting, the best way to spend is with cash or debits. If you do have a credit card debt, stop spending on that card immediately and start to repay the debts. It’s best to pay over the minimum amount so that you are reducing the interest you are paying. Also pay off other loans and debts as quickly as possible. Once you are debt-free, then you can start saving money to purchase a luxury item.
7. Tighten your belt.
Learn to live on the bare necessities, at least for a couple of months. This way you will see what you really do need to survive, while also being able to start building up a little nest egg.
8. Don’t loosen the belt too much in a good month!
A good month doesn’t mean you should abandon your budget. You need to stay disciplined. A good pay month on the same frugal lifestyle will mean a good cash injection into your savings and then you can splurge on a luxury down the track.
9. Be consistent and keep going.
A budget will only work as long as you follow it consistently each month. Give it at least four to six months for it to work. It will also give you a great snapshot of what has been successful and easy to implement, areas that you could pay more attention to, and expenses that you had not considered.