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Personal Finance

How to Budget Irregular Income

By Alexa Mason • February 17, 2015

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When you're self employed budgeting irregular income can seem scary. Here are two very easy ways to get started.One thing that stops many people from taking the plunge into self-employment is irregular income. It can seem scary to have money coming in sporadically rather than the same amount week after week.

However, budgeting for irregular income really isn’t that difficult.

Here’s two different ways you can do it depending on the consistency of your current take home pay.

List Your Last Six Months’ Worth of Net Pay

Before you take the leap into self-employment I would highly suggest that you start on the side. You need to be able to see what kind of potential your business has and you need to know what to expect income wise.

If you have no idea what kind of money you’ll be bringing home it’s going to be hard to set up your budget.

Your first step is to list out your last six months’ worth of net pay. (Your net pay is what you earn minus any expenses and minus taxes.)

If Your Net Pay is Super Inconsistent

If your net pay over the last six months is all over the place you need to base your budget off of your lowest month. This keeps you super safe when creating your budget.

Any excess money can be put into a “salary fund” so that you can build up reserves to eventually average your last six months’ worth of income. Try to build up your salary fund to six months’ worth of your average net pay.

If Your Net Pay is Fairly Consistent

If your take home pay doesn’t veer too much from month to month you’ll be safe just averaging out those six months and using the average for budgeting purposes.

Whatever money you have left over will need to be put into a salary fund until you get this built up to at least six months’ worth of expenses.

Why a Salary Fund is Crucial for Beginners

If you jump into self-employment or a commission based career without any savings you’ll set yourself up for budgeting failure. You must have a cushion to fall back on!

That’s why it’s so important to use your lowest income month or your average income month for a while and then build up a six month salary fund.

You can re-evaluate your income every six months or so to see whether you should give yourself a raise or a pay cut.

As long as you err on the side of caution budgeting for irregular income doesn’t have to be hard. You can make your budget regular by either basing your spending off of your lowest or average income month.

Alexa Mason
Alexa Mason

Alexa Mason is a freelance writer and wanna be internet entrepreneur. She is also a newly single mom to two beautiful little girls. She chronicles her journey as a single mom trying to make it big at www.singlemomsincome.com.

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.

Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors’. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone’s responsibility to ensure all posts and/or questions are answered.

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