Budgeting ideas

How to Budget for an Irregular Income or how to avoid (bad) surprises (like a bad year)...

"Most articles I’ve read on this subject suggest basing your budget on your average monthly income from the past twelve (or six or three) months, but I don’t recommend that unless your income has wild swings — $12,000 one month and $0 the next. As this past year has demonstrated, incomes can and do decline. A prolonged decline wreaks havoc with the “average income” budgeting method.

When I project my cash flow, I base it on my minimum monthly income from the past twelve months. Using my minimum monthly income instead of my average monthly income gives me a safety buffer. And when you have an irregular income, a safety buffer is vital.

Note: If your income is variable, but you know that you’ll always make at least $X,XXX, then it makes sense to base your budget on $X,XXX. Anything you earn above this amount is gravy."

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"Every month as you earn income, receive it (and leave it) in your business account. This is where you accumulate your cash. Because it’s in a high-yield account, it earns interest as it waits for you to use it.

From this money, pay yourself as if you were an employee. Your monthly salary is whatever you calculated as your monthly budget, your minimum monthly income from the past twelve months. On a set date each month, write yourself a paycheck. Leave the rest of the money in your business account. "

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"If possible, live off just one income. If you have an irregular income but you have a partner who makes steady money, explore the possibility of living solely on her income. Use your partner’s money to meet the necessities, and use yours to pay for savings and extras. This isn’t an option for most people, but if you can manage it, it’s a great way to budget."