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If you are a business owner or freelancer with an irregular income, you can create a budget using the strategies in this post!
A 9-5 job has many disadvantages, but one advantage of traditional employment is consistent income. It allows you to follow a strict schedule and create a budget that aligns with your monthly income.
However, you will have an irregular income if you are an entrepreneur, business owner, or freelancer. You can’t predict your earnings because they vary from month to month.
So, this prevents you from creating a solid budget. As a result, you experience financial instability even if you earn a lot of money. Today’s article will give you some tips for budgeting with an irregular income. Read on!
How much do you need to maintain your current lifestyle? Answering this question is crucial before making any financial decisions. Otherwise, you will indulge yourself in guesswork without realizing the actual situation.
Ask yourself, “How do I track my expenses?” “How do I estimate my monthly income?” “Do I need multiple income streams?” “Am I on the right track for retirement?” “How long a fixed saving can support me?” “Do I have a plan in place to pay off debts?”
Remember, your current expenses are crucial in giving you valuable insights. You can use these insights to create a balanced budget or plan, especially when you have an inconsistent income. So, you must understand how much it costs to streamline your lifestyle and whether you need to adjust spending.
Identify and sort out your expenses to determine which ones are unavoidable. However, you can’t get an accurate picture of your daily, weekly, or monthly spending without tracking your expenses.
For example, you can’t avoid expenses like housing, food, transportation, insurance premiums, and debt payments. So, if your earn less and want to reduce your spending, you must create a list of avoidable and unavoidable expenses.
Although you can’t predict how much you will earn, you can devise the best and worst-case scenarios. We recommend budgeting for the worst when you have an irregular income.
In simple words, you will always want to avoid spending money on unnecessary things and focus on your needs. For example, you are a freelance web developer on Fiverr or Upwork, and your income is $8,000 in the peak season and $3,000 during slow months.
In that case, your average income is between $5,000 and $6,000, meaning you must create a budget based on the average earnings. On the other hand, $3,000 is the worst-case monthly income. So, budget for the best, moderate, and worst-case monthly incomes.
Sometimes, you will experience scenarios when your unavailable expenses exceed your monthly income. You can open a savings account and automate it to set aside a specific amount.
For instance, you make between $3,000 and $8,000 monthly, and your fixed expenses are $4,000. So, if you want to avoid debt, you must save $1,000 in the worst-case scenario and $4,000 in the best-case scenario. Always make informed decisions without relying on your emotions.