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How to Make Budgeting on an Irregular Income Easy

Cathy Plowman

Budgeting can be a challenge even for the most organized person.

Of course, it’s less daunting for those working a steady job that provides a predictable paycheque right on schedule, each or every other week.

For these individuals, they always know what’s going to be coming in, making it easier to budget for what they’ve got going out. But what about people with an irregular income? I’m talking about self-employed contractors, freelancers, and entrepreneurs, plus salespeople, restaurant workers and others whose tips or commissions can vary wildly depending on the day or season.

If you fall into this category, creating a spending plan or budget may seem like an impossible task. However, with a little effort, it’s not so hard—and it can even leave you with some substantial savings! Here’s how it works.

1. Take a Look Back

First, you’ll need to review your income over the last year (two years is even better for a more accurate understanding of your income). While you may not have all your pay stubs handy, or any pay stubs for that matter depending on your job, you can likely take a look back at your bank deposits over that period of time.

While some financial gurus might suggest finding an average between the lowest and highest earnings and then work with that number as your monthly income, we believe it’s better to work with the lowest amount you’ve earned in any given month and then base your monthly budget or spending plan on that figure. It’s always easier to add more money to your budget if and when you have it, rather than have to adjust your budget or spending plan because you actually have less money coming in than you had anticipated. 

2. Create Your Budget

Now that you know the least amount of money you’re likely to earn in any given month, it’s time to create your budget (aka spending plan) using that amount as your base monthly income. You can use our Budget Tracker to get started; it will take you through all the expenses you will need to include into your budgetsuch as housing, utilities, food, etc.—along with any discretionary items you'd like to include (those things you don’t really need, but still enjoy).

3. Test Your Budget

Now that you've got a budget or spending plan in place to work with, it's time to give it a trial run. We recommend testing it out for about a month. At the end of the month, review your expenses—how’d you do? Did you come in under budget and have some extra funds left over? Or did your expenses exceed your income?

If you still have money to spare based on the least amount you’re likely to earn, you’re in great shape! If you came out just even with your budget, that’s okay too; remember, you’re working with the least amount of money you expect to earn on any given month, so if you stick with the budget, there will be months where you'll have some money left over.

And if you find that you’re over budget, it’s time to rethink your expenses and see where you might be able to cut back. (Our budget calculator can be a real eye-opener!) There are some simple things you can do, like call your service providers and negotiate better rates. You can also look at supplementing your income by incorporating a side hustle or side job, like dog-walking, house-sitting, becoming an Uber driver, selling stuff online, or doing some freelance work, like blog writing. 

4. Create a Hill and Valley Fund

If you’ve found yourself with some extra money, it’s time to decide what to do with that loot.

While it might be tempting to spend it, knowing that there are highs and lows when it comes to your income, we recommend a “hill and valley” fund, which is an account where you add any extra money to when times are good, and then you can pull money from this account when times are little tight one month. But do not think of this as your emergency fund! That should be budgeted for separately and the ONLY time you withdraw money from your emergency fund is when you encounter an actual emergency, like your car breaking down, you needing to replace your furnace, or an emergency dental procedure. The hill and valley fund on the other hand is yours to add to or pull money from as needed based on your fluctuating income.

If you’ve followed these steps and are still finding it impossible to meet your budget based on your monthly incomewhich in this case, should be the least amount of money you expect to earn any given month—there are financial planning and money management techniques that can help. (And, if you’re finding it hard to stick to your budget due to outstanding debt, debt consolidation may offer some relief.)

No matter what your personal financial situation is, our certified credit counsellors can help. One of our amazing, caring counsellors will review your situation and discuss your options. The counselling session is completely free, 100% confidential and non-judgmental. Let’s talk! Just call 1-800-267-2272 to book a free debt counselling session with an expert today.

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Topics: Budgeting, Low Income

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