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You are here: Home / Finances / Budgeting When Your Income is Inconsistent

by Barry  8 Comments

Budgeting When Your Income is Inconsistent

image by Finsec

One of the most common excuses I get for people who tell me they “can’t budget” is that their income varies from month to month.  Sometimes I hear it from someone who gets paid hourly and sometimes works overtime.  Sometimes I hear it from someone who is a commissioned salesperson.

Sometimes I hear it from someone who owns their own business and gets paid based on business profits.  These are three extremely different situations, but the approach to budgeting is actually pretty similar.  Let’s break it down.  Before we do, though, let me say one thing about those who are self-employed or partially-self-employed.

You must keep your business and your household finances separate.  Even if every penny you earn comes from your small business and you are the only employee, keep good records and keep things separate.  As you pay yourself a salary, make record of this.  This good recordkeeping is the only way you’ll truly know how your business is performing and allow you to make a household budget.

  1. Capture all your income.  Since your income varies, look back over the past 6-12 months and see what income you’ve been able to make and then explain it.  Look for trends that you can use to forecast your future income.  You do this in your business – do this in your personal life as well.  Set a baseline amount that you can be reasonably assured you’ll bring in each month by using the low end of your forecasted income. 
  2. Capture all your expenses (remember, household only – not business).  Once you’ve done this, you can look at the math and see if your forecasted income will cover your expected expenses.
  3. Make an Emergency Fund a HUGE Priority.  Especially when you don’t have a steady paycheck, it is critical to have some money set aside for when you have a slow month in the business or lose a bunch of hours at work.  During good times, set money aside to build up that fund.  During lean times, cut expenses as much as possible and dig into that fund only as needed to stay afloat.
  4. Be Diligent in Your Recordkeeping. Imagine you will be audited next week.  If you can explain to someone where money is flowing into and through your household and prove it, you’re on the right track.  You can’t be sloppy with your business finances and expect to make it.  Don’t try it with your personal finances either.
  5. Update Your Forecasted Income/Expenses Each Month. Again, this comes straight from the practices that should be in place for your business.  Every month’s budget should look different.  My gift budget for December looks way different than the gift budget for January.  Wonder why? Hmmmm….
  6. If the Math Doesn’t Work this Month, Prioritize.  There may be months (especially as you implement this and haven’t yet built up a good emergency fund) that you won’t be able to pay every bill.  In that case, prioritize.  If you are sure your income will bounce back and are just having a rough month or two, pick the bills you must pay, then work out payment arrangements with the rest.

As you can probably tell by now, the process is pretty similar to someone who is on a fixed salary with one big exception – more detailed planning is required.  Don’t get in too big a rush and don’t expect your budget to work for the first few months.  But don’t give up!  I’ve never talked with someone who figured out how to do their budget who said it wasn’t worth it!

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About Barry

Barry is the husband half of the Humorous Homemaking team. He speaks and writes mostly about personal development and personal finance issues. He is the author of From Debtor to Better: The Details of Debt and How to Get Out! and regularly speaks at conferences and other events.

Disclosure of Material Connection: Some of the links in the content above are “affiliate links.” This means if you click on the link and purchase an item, I may receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”

Comment Policy: I love reading your thoughts and input on what you read here. I'm sure we'll disagree sometimes and that's okay! In those cases, do what's right for you and yours. As with any form of communication, only post comments that move the discussion in a positive direction.

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Comments

  1. Karen says

    July 29, 2015 at 6:03 pm

    Hi Barry, Me & my husband fall into that category. We dairy farm and you are not sure what the price is going to do. Do you have a form to go by to do a balance sheet. Where I could put total expenses on each month. We have done that with our past and am not sure how to do it on the computer like our instructor did it.

    Reply
    • myersbr2 says

      July 31, 2015 at 2:20 pm

      Give this a try: http://www.barrymyers.me/monthly-budget-planner-for-excel/

      Reply
  2. Erin@TheHumbledHomemaker says

    May 16, 2013 at 3:49 pm

    Barry, how much do you think a small business owner should keep in their business fund (like, should a small business owner/blogger have an “emergency fund” and then 3-6 months of business expense money in an account?). Thanks!

    Reply
    • Barry says

      May 16, 2013 at 4:25 pm

      Great question, Erin! Any small business owner should keep their personal funds separate from their business funds as first priority. This was a hard transition for Stacy and me because for so long, it was such a hassle for so little money. But after finally “biting the bullet” and doing it, it has made bookkeeping a lot less challenging come tax time, etc. So…once that’s done, you should have your personal emergency fund that IDEALLY has 6 months of personal expenses, and then your business should have a cash stockpile as well – 3-6 months of expenses should be good there as well. The goal is to be able to always pay bills and never have to rely on credit to do so.

      Reply
  3. Carolyn says

    January 25, 2012 at 8:04 am

    Thanks for this! We just talked about our budget on my blog and posted this to my FB page for those in this situation. Came your way via Frugally Sustainable.

    Love your blog!

    Reply
    • Stacy says

      January 25, 2012 at 9:21 am

      Thanks Carolyn! 🙂 Budgets ROCK!

      Reply
  4. Anne @ Quick and Easy Cheap and Healthy says

    January 23, 2012 at 7:36 am

    Part of our income is steady and reliable, but part is rather unpredictable (to say the least). We do all of these things you’ve mentioned, especially updating our forecasted income each month. Over time, I’ve developed an eye for what will influence the income and how it might be affected (like right now is cold/flu season so I should expect more piano student cancellations).

    Reply
    • Stacy says

      January 23, 2012 at 8:26 am

      It always pays to be prepared. 🙂

      Reply


Hello! I’m Stacy!

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