How to Create a Budget for an Inconsistent Income

Whether you are a business owner, are in a commission-based position, or have some other circumstance that causes inconsistent income month-over-month, it is a common thought that it is impossible for you to create and stick to a budget. However, quite the opposite is true!

Sure, the process may look a bit different than your standard budget, but after the first few months of adjustments, you will be able to take control of your finances and receive all the same benefits of that of a regular budget.

Here at UBOMI, we are committed to helping those in every walk of life achieve their financial goals by providing tools, resources, and a team of financial experts.

In today’s blog, we are going to break down step-by-step how to create a budget when you have an inconsistent or irregular income. Contact our team today with any questions!

Step 1: Calculate the lowest estimated income

To start, you will need to calculate your lowest estimated income. This is the means that you will build your budget with.

Some have said to use an average of your income, but that can lead to you being short on income some months, which can lead to stress and credit card debt. Starting at the very bottom and building up from there will offer you the best financial foundation.

Similarly, calculate your base necessities when it comes to expenses. This is most often broken down into housing, transportation, food, and clothing.

You will also want to add in debt payments and savings into your base expenses, even if the funds for each are low to begin with.

Step 2: List any additional expenses

Now that you have your basics calculated and worked into your budget, create a list of any additional expenses.

From entertainment to eating out, these expenses look a little different to each individual person. Add all of these into your budget below your necessary expenses.

Since many of these expenses vary from month to month as well, dig out your last few bank and credit card statements to calculate the most accurate number possible.

If you find any major red flags during this step, it is time to address those expenses and take control with your new budget. 

Step 3: The idea of a Zero-Sum Budget

Now that you have your base income and all expenses laid out, you have the total you need to pay bills for the next month.

When you get paid, deposit that total into your regular checking account and place any excess into savings. This is known as a zero-sum budget.

The idea is that starting at zero every month, each dollar of income is allocated to a specific place so that it is spent wisely and you can build up your savings. 

Step 4: Break up your savings 

This may be the most important step for those with inconsistent incomes. You will want to break up the amount that went into savings in the last step into at least two different categories.

One will be your regular savings that should not be touched, the other is a miscellaneous savings to cover your expenses through months where income is lower than expected.

Keeping these separate is vital to ensure you don’t dip into your normal savings, but also have peace of mind on those months that you aren’t going to break even.

Step 5: Make adjustments when needed

Reassess your budget each month and adjust expenses accordingly. Ensure that any special occasions are taken into account, as holidays, birthdays, vacations, etc. can create unusual expenses that are best to plan in advance so that you can enjoy them without dipping into your savings or charging it to the credit card. 

Another adjustment that may need to be made is if you receive more income than expected, and need to reallocate it to other categories beyond savings.

Since your expenses are still pretty barebones, this is when you can add a little extra to a category or two for the month so that things don’t feel quite as tight.

However, it is vital to always start by putting away at least what you have budgeted for both of your savings categories.

Step 6: Stick to it

Living on a budget is not always easy or fun, but the benefits that it can provide you and your family are abundant.

Specifically with inconsistent income budgeting, it can take some time to get used to and feel comfortable in it, but we assure you that if you stick to it, it will get easier and you will feel confident in your finances.

UBOMI is here to help with inconsistent income

As mentioned above, we understand that budgeting an inconsistent income is not always a walk in the park, but our team of financial experts at UBOMI is here to assist you.

Our online budgeting tool and plethora of budgeting resources make it easy for you to track spendings and offers budgeting tips that will take your finances to the next level. Contact UBOMI today to get started!

If you like our ‘How to Create a Budget for an Inconsistent Income‘, watch this space for regular updates and budgeting tips!