If you’re a business owner, contractor, freelancer or commission-based employee, regular budgets probably don’t work for you. You may have only a vague idea of what you’ll bring in from month to month. So how are you supposed to make a budget and stick to it?
The fact is that your budget won’t look like anyone else’s. And that’s OK.
You can survive – and even thrive – financially on your roller coaster income. With a few simple steps, you can get in control of your money, instead of letting your ever-changing monthly income control you. Here are four tips to get you started:
1. Begin by prioritizing.
Priorities are an essential part of any budget. After all, you don’t want to blow all your money on a shopping spree and then be left eating ramen noodles for the month. But when you’re on a roller coaster income where things change from month to month, priorities are even more important.
For example, when you know that Friday’s paycheck will cover Monday’s electric bill, you can go out to eat on Thursday, even if it drains your checking account a bit. You know you’ll get paid tomorrow, and things will be fine.
But when you don’t have that paycheck to count on, you need to be sure that light bill is paid before setting foot in a restaurant or shopping mall. On a roller coaster income, you need to pay bills by priority level – not by due date.
So at the beginning of the month, make a list of your financial priorities, from highest to lowest. Start with the essentials: food, utilities, housing and whatever you need to do your job (Internet, your car, etc.). Then add in other bills and obligations: credit card payments, your kid’s field trip fee, etc. At the very end of the list include nonessentials: new clothes, gifts, dining out and fun money. Then, spend your money in that order.
2. Get ahead of the game.
As you’re prioritizing, be sure that a significant portion of your budget in income-heavy months goes into savings. This is hard. You want to spend that money on things you want but can’t have during those leaner months. But socking money away in savings and an emergency fund will make all the difference in your long-term financial success.
Once you have some money in savings, your budget can even out a little. Let’s say in August, you have $1,500 in savings. And then in September, you’re a bit short on the essentials for your budget. You can pull $300 out of your savings account to finish paying the bills, so you don’t have to be late on anything. Then if October brings another surplus, round out your savings account again.
3. Use credit wisely.
If you can control your spending, credit cards can be a useful tool when you’re living on a roller coaster income, especially if you don’t have much in savings. If you don’t have a full savings account, one low-limit credit card can help you make ends meet in a lean month. Just be sure to pay the balance back down the next time you have surplus money.
4. Plan for long-term expenses.
If your salary-based budget includes an extra $500 per month in flexible money, you don’t need to worry too much about longer-term expenses, like annual car registration fees. As long as these expenses are under $500, you can take care of them in the month they pop up. (Though you may still want to plan for them, just to smooth out your budget.)
But what if your car registration is due in a month when you don’t have any extra money? Then you’re really in trouble! So it’s extra important for people on a roller coaster income to plan for these long-term expenses. Set aside a portion of that expense each month so that when the bill is due, you have cash to take care of it.
The bottom line: Thriving financially on a roller coaster income isn’t easy. In fact, it can be downright frustrating sometimes. But if you put these four tips into practice month after month, your savings will grow, your budget will level out and you’ll be able to survive on your unpredictable income.