If you think that a budget is only for those with a steady income, think twice. Read on to know why a budget is a must for unpredictable income.
If you’re a freelancer, a contractor, or even a self-employed professional, you’re probably aware of what we mean by an unpredictable income. Imagine planning your monthly expenses without having an idea of how much you’ll make this month, when you’ll get paid, and how much you’ll earn the next month.
If you earn money in spurts and feel that it’s difficult to manage your variable income, you’ve come to the right place. Self-employed and freelance professionals are at a disadvantage when it comes to the perks of enjoying a steady income.
Not having a fixed or stable income every month may sometimes disrupt your tax planning. Don’t fret as we are here to share some tried and tested budgeting strategies for handling an erratic income. Let’s get started with some of the easiest things you can do.
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Determine Your Average Pay
If you’re accustomed to receiving sporadic payments in irregular periods of time, chances are you probably don’t have an idea of the average pay you make. Even though it is time-consuming, we suggest you take a look at your payments in the last year and determine your highest and lowest pay. Then, calculate the average. This will prove insightful while setting up your budget. In other words, you’ll budget keeping in mind the lowest or average amount you’ve earned in the last year.
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Monitor Your Spends
If you earn in uneven increments, your spending habits may go for a toss. In months when your income is on the higher side, you may tend to spend more than you otherwise would. This is where a monthly budget comes in handy.
Set a limit on the amount you’ll spend every month. We know this is easier said than done. However, to keep excessive spending in check, start by categorizing your expenses and allocating a budget for each of them.
For instance, group your expenses into categories such as rent, utility, groceries, medical bills, commute, entertainment, electronics, gym or library subscriptions, loan EMIs, Internet and telephone bills, etc. Also factor in fixed expenses such as loan EMIs, house rent, etc. Remember to include your savings, investments, and debt repayments.
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Aim For A Sizeable Cash Nest
If you have a fluctuating income, having a cash nest should be at the top of your list. Having a cash fund at standby will give you room to keep afloat in months of less than average pay.
Wondering how this is different from an emergency fund? Your cash nest is just for times when you’re a little low in cash and expecting a paycheck in your mailbox soon. In contrast, the emergency fund is preferably a separate account that is not meant to be accessed unless there’s a dire situation such as temporary unemployment. Once you’ve paid all your bills and made contributions to your savings as well as investments, keep parking any surplus amount in your cash nest.
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In addition to these strategies, you can also adopt some smart ways to save cash for rainy days. For instance, get a cashback Credit Card so that you can enjoy cashback rewards on paying your bills through your card. Also, if you’re in a cash crunch, you can consider taking a Personal Loan to ease your bill payments! Why not take a tour of our website and explore the range of financial products we’ve got for you?