At different points in our “coupled” lives, my spouse and I have had semi-irregular income. When we were first married, I worked at a job with unpredictable bouts of overtime, and my spouse’s job had profit sharing as part of its salary structure, so our income was very variable from month to month. Now, my spouse’s salary is very regular, but my income is completely variable. Because my spouse’s salary at this point eclipses my earnings, I consider our income fairly regular, but budgeting, even zero-dollar budgeting, can be done even on the most irregular of incomes.
When looking at how to budget when your income from month to month is in flux, one of the big keys is to try and even out the hills and valleys as much as possible through a savings plan. To do this, you need to save a portion of what you earn in good months and use that to help smooth out the tougher months. It is a simple concept, but hard to do without serious discipline. It is easy to justify spending a little more in “good” months, but the key to making irregular income budgeting work is to treat good months and bad months the same from a budget perspective.
How do you know what to save, and what qualifies as a good month? If you have had an irregular income for three or more months, the easiest way to do this is to come up with your average earnings over an at least 3 month if not a year period. The longer the better. You can then base your budget off that number. Let’s say the number is $2500 per month. When you make $2700, you bank $200 of that. When you make $2300, you pull $200 out of that savings to make up the difference. This should be a totally separate account from your emergency savings account or any other savings goals. This is the budget savings account and will make your irregular income life simpler to manage.
If you have no idea what you will earn month to month, you’ll have to be more conservative and creative at first. Determine your very baseline expenses. This is the amount you absolutely need to make, and this will form the beginning of your budget. What you make over that, bank. After a few months go by, you can look at if you end up with a surplus each month, and make some upward adjustments in your budget to create yourself some wiggle room. Go slowly, and be careful. The more data you have, the more sure you can be that you have the room to wiggle.
What happens if you do better than history dictates for an extended period of time once you’ve “regularized” your income? You can use that savings surplus towards another financial goal, or make some upwards adjustments in your budget. I recommend some additional retirement savings, myself, as long as you are out of debt.
Basically, the key to budgeting with irregular income? Make it mimic regular income as much as possible. Predictability is the key to the zero-dollar budget. If you know how many dollars you have, you can assign every dollar a job, and make them work as hard for you as you worked to get them.