Budgeting when you know what’s coming in each month is simple. Budgeting when you don’t know how much is coming in each month is a little more challenging.
As someone who has worked for themselves for over 15 years, I know this situation all too well.
One month you’ll work a lot and make decent money. The next month could be quieter with not so much coming in.
Christmas and New Year could be exceptionally quiet, with not much going on at all.
So how do you budget with finances like that?
It’s more of a challenge but still possible.
Create an income history
Creating a household budget is still a cornerstone of financial management but you’ll need to approach it in a slightly different way.
List your income as normal but keep a record of each monthly income so you can see how it varies.
Once you have 6 months or a year’s worth of income listed, take the lowest amount you earned in a single month and use that as your budget income.
Compare your income to outgoings
Now you have a ballpark figure of how much you typically earn in a month, you can continue working your family budget as normal.
Compare your new income to your outgoings and identify whether you end the month in debt or in credit.
If you’re in credit, allocate what’s left to savings. If you’re in debt, see if you can identify cutbacks you can make to even things out.
Balancing a budget isn’t easy.
Ideally, every pound you have should have a job. Paying bills, buying necessities, and keeping your family fed and warm.
Anything that’s left over should also have a job. Paying down debt, going to savings or both.
Bank any excess earnings
If you can balance your books when you’re at the lower end of your earnings history, bank the excess on those months you earn more.
Once you have 3-6 months total outgoings in the bank, you can relax a little and consider that holiday or new TV you have been wanting.
That savings pot is your insurance policy for those months when you earn even less or nothing at all.
It’s a huge psychological benefit to have those savings. I know, I have been there.
It took me nearly 2 years to save up enough to cover my mortgage and bills for 3 months. But the feeling of satisfaction and the reassurance of knowing I wouldn’t be homeless if I had a bad month was incalculable.
If you can possibly put yourself into that position, I strongly recommend it.
Budgeting on a variable income
With more people than ever going freelance or starting their own business, learning how to budget on a variable income will be a useful skill to have.
You won’t always be able to balance the books each month, especially at first. But, over time and with perseverance, you should build up a picture of your finances over a year.
Once you have that, you can budget more predictably and make sure you end each month on a high.
Or at least not in debt.
Like most things I write about here on Savings Superstar, it’s easier to say than to do, but it can be done.
I have done it and thousands of other freelancers, contractors and small business owners have done it too.
There’s absolutely nothing stopping you doing it either!
