How to Budget When You’re on Inconsistent Income

There are certain jobs, even careers, that don’t provide consistent income. Sure, you can make a living off these jobs, but you can’t ever predict with certainty what your income might be from week to week, month to month, or even year to year.

Regardless of your income, bills and expenses tend to come fairly regularly, and neither seem to care what your income was that month. In addition, your future retirement is still a reality whether you think about it or not.

So rather than fret, give yourself a budget and a “monthly salary.” Even though you may not actually make a salary per se, you can create one for the purpose of your budget by adding together a few key elements:

  1. First, determine your “make it or break it” money. This is the money you have to pay each month no matter what. It includes utilities, loan repayment, insurance, etc.
  2. Next, calculate your future tax liability by projecting your annual income (aim high) and then dividing it by twelve. Then set this amount aside in your budget each month.
  3. If you like to travel, look at your travel goals over the next year and aim to set aside a fixed amount each month to cover your plans.
  4. Treat savings as a monthly bill. Rather than seeing what you have left over each month, instead make a point to pay yourself out of your budget, putting money aside regularly each month.

Add these four steps together and you have your target income each month. You may not always hit the mark each month, but over time you can learn to lean on the fruits of the good months during the lean months by putting money aside over time for expenses.

Next, try opening up more than one bank account. One example would be to have three separate accounts. Account A for income, B for bills, and C for savings. Learn to use the first account to gather all your sources of income. Pay your salary from account A into account B and C as needed to cover your expenses and goals.

The goal here is to try and build account A so that you are paying yourself from this account using last month’s income. It may take some time, but it will take much of the stress out of your financial life.

There are multiple ways to live on an irregular income, but these ideas are a few helpful ones that have worked for many people. Take what works for you and create a method that helps take the mystery out of your fluctuating earnings and gives you peace of mind.

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About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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