How to Budget With an Irregular Income?
Budgeting is the biggest responsibility and so, it is the biggest challenge when you are earning irregular income.
Irregular income means that you don't make the same sum of money every month. This can happen when you work as a freelancer or are employed as a gig worker. Simply, in other words, your income fluctuates each month due, and that is based on your work. This is a very tricky situation to handle, however, it is not impossible to tackle it if done mindfully.
If we go by numbers, as per a report by BCG, the gig economy holds the potential to serve up to 90 million jobs in the non-farm sectors of India and can add up to 1.25 percent to the country's overall GDP. Also, according to Velocity Global, the number of global gig workers is expected to rise from 43 million to 78 million in the year 2023. The report also suggests that over 16 percent of Americans have completed a job using an online gig platform.
With the growing trend of gig work, the situation of being caught with the situation of irregular income is becoming a common scenario that brings obstacles while we create a budget. Developed and developing countries are the major growing fields of the same. So, if you are in such a situation, how will you handle it? Well, you should follow the following ways of budgeting with an irregular income:
1. What is Your Average Income?
No matter how hard you try to control the expenses, every next month is going to get harsh on you. Although, it is not impossible to handle this situation while budget planning. All you need to do is track your average income. Now, the question is, how are you going to do this? So, to get an estimate of your average income, you need to track and make an estimate of the lowest income in order to check on the average income. Because with an irregular income, keeping track of the pay is very important so, that you can manage your expenses.
2. List Your Monthly Expenses
How much do spend on a monthly basis? It is a little bit tough to calculate as it might fluctuate based on your needs. But, it is possible to track the expenditure on basic needs. So, what are basic expenses? It is very simple, the amount you spend on food, travel, health, and other daily basic necessities falls under your basic expenses. With this, you will be able to get an estimated idea of how much you spend on your basic need and budget accordingly by adding some extra amount for the same which should be around 5-10 percent more in the era of inflation and rising prices of goods of basic needs. The tax bracket on the income should also be kept in mind while making a budget.
3. Keep an Emergency Fund
This is the most important aspect of budgeting once you are done with the expenses. You should always keep an emergency fund and keep yourself prepared for any emergency situation that arrives without knocking at the door. This way, you'll be able to make smart choices to tackle any trouble. Well, it kind of seems impossible to save on emergency funds with irregular income. But, anyhow it has to be maintained. So, keep an emergency fund, you can save in months when you earn excessive income and try to keep it intact until the actual need arrives. This can be done by keeping track of your income throughout the year and diving the plus part into savings and emergency funds.
4. Plan and Save
It is difficult yet important! You are anyhow supposed to plan your savings and as mentioned above this can be done by tracking your income throughout and adding into the savings as much as you can. All you are required to do is plan the saving by imagining it as a basic need or a bill that you have to pay and manage otherwise you have to add more next time as a fine or penalty. You can add saving goals to fulfill the purpose as well. For instance, it can even be about your saving for vacation funds, and retirement funds as well.
5. Make a Budget Every Month
While, those with regular and stable incomes, make a budget once every year, this becomes a boon to have an irregular income. It requires a bit of determination and focus and a little time to count on expenses to make a budget every month. People with irregular income are supposed to make your budget every month because of their fluctuating income. The biggest benefit of this practice is that you will be prepared for the scene of expenses even before it arrives.
6. Adjustments on Payday
Once, the payment arrives. It can be more or less depending upon the opportunities you got in the month. After that, you are required to make some adjustments depending on the payment you receive. If the payment is higher than expected, you should add more to the emergency funds and if that is less than the amount you expected, then you must make some changes and make adjustments to the expenses by making some cuts in them. You can also take the help of budget planning apps, from app stores that will make your work much easier.