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As young adults and college students, we are more likely to have an irregular income and have to adjust our budgets each month to keep up. Here are a few tips and tricks to make budgeting with an irregular income a lot easier.
Tip #1
Use the percentage-of-income budgeting method
This budgeting method allows your budget accounts to proportionally move with your income from month to month.
Determine what percentage of income you want to allocate toward each budget
Use the same percentage each month to calculate your budget amounts
Tip #2
Use your lowest possible income estimate when creating your budget
If your income fluctuates at a high rate and can drastically vary over time, it is best to create budgets based on your lowest possible income.
Setting your lowest income as your base number for your budget will ensure that your expenses can always be paid for no matter how much your income varies.
Doing this will increase your financial security and make sure you are living within your means.
Tip #3
Build an emergency fund!
Emergency funds are essential when working with an irregular income. The money you save in the months where you income is higher than average, will help fund the months where your income dips below average.
high income month = put money into emergency fund
low income months = use emergency funds for emergency expenses
Example
Month 1: Month 2:
Income: $3,500 (high month) Income: $2,500 (average month)
Expenses: $1,200 Expenses: $1,200
Savings: +$1,500 Savings: +$1,000
=> Emergency fund: +$800 Emergency Fund: +$300
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