Budgeting on an Irregular Income

Now I’m a freelancer–have been one now for the past 6.5 years….and if it’s one thing I know all too well is that it can be challenging (though we all need to)  budgeting on an irregular income that varies month to month. I’ve outlined 3 key points that will help make investing in yourself a little easier.

Creating a Budget

1. First, you need to outline your expenses for the whole month in a notebook or on a spreadsheet including a little for charitable contributions and savings (be honest with yourself, AND be sure to err on the side of caution and take the higher number in case things like utilities vary some months).

2. From this list, see what are absolute necessities and what you can live without (at least for right now).  Absolute necessities would need to be taken care of first and include things like: rent/mortgage, food, utilities, gas/subway fare to get to and from work, health insurance, and medication).

3. Then, see what items on your list can be scaled back on…for instance, can you get a Family Plan through your cell phone carrier instead of having individual bill?  Or say if you just HAVE TO HAVE Netflix (maybe in lieu of a cable bill) you just stream vs the newly elevated cost to stream and get DVD’s by mail. You be the judge.

4. Rate other monthly expense in tiers of order of importance.  So, next I would pay at least the minimum on things like credit card bills, student loans, or anything that would impact my credit if not paid in a timely fashion.  After that are cell phone, dues, online subscriptions, cable/internet, and beauty costs that I’m not able to do myself.

If there are things you pay every other month, remember to divide that expense by 2 and save up half the amount for it this month, and the other half next, so you aren’t struggling to come up with the whole amount over the course of one month.

Diversity Your Projects

Just like you’d diversify a portfolio in your investing….you need to diversify the different projects you take on to bring in multiple streams of income. While it may sound cliche, I learned all to well the hard lesson in “putting all my eggs in one job basket” so to speak when tough economic times caused a company I worked for to downsize significantly, after 2 years with them –forcing myself and everyone else to resort to whatever they were doing years prior to now make money. I encourage you to keep strong working relationships and be loyal to those who give you an opportunity, but I suggest having a couple of pokers in the fire for unpredictable times such as these.

Regularly Assess Your Financial Situation

Very rarely do I allow significant monthly bills to be automatically withdrawn from my account each month.  Because I am budgeting on an irregular income it is important that I keep track of what bills have been paid as I go along. In the notebook or on the spreadsheet you created above, as you pay each month’s bill, check it off your list and be sure to add new ones you may incur so nothing falls through the cracks. I also have a spreadsheet that I create annually that lists:

YTD Spreadsheet:
1. Job I worked
2. Date
3. Gross Pay Expected (with YTD total being tallied)
4. Pay Received (with YTD total being tallied)
5. Column to check off when payment is received.

Then the day you complete a job (not the day you are paid for it, because that money may not come til months later), record all the pertinent details from above and check off once paid. This way you have an accurate view at a glance on what payment you have and have not received.  While it’s the accounting background in me that gives me an affinity for spreadsheets, I know all too many artists friends who don’t keep track of things and some times aren’t even aware they haven’t received payment for something a year later.

While budgeting on an irregular income may initially seem impossible, with a little planning one can have an accurate view of their financial picture and be better prepared for the future.

***This post is part of Women’s Money Week 2012. For more posts about Budgeting see Budgeting Roundup