Dave Ramsey says that it takes at least 3 months of trying to really get your budgeting system down. We’ve tried many systems in the past, but we’ve hit about the three month mark of budgeting the Dave Ramsey way – to be specific, every dollar budgeting or so called zero based budgeting (read a little about the concept on Dave Ramsey’s website here). And let me tell you, it’s working.
It’s so much simpler than anything we’ve tried in the past. I will say that the three month prediction is accurate, and I’m glad we made the commitment to stick with it. We’ve been making adjustments as we’ve come to terms with exactly what our expenses are on a weekly basis. We had a head start as we’ve always kept a list of fixed expenses and their due dates, but I’ve been nailing down the numbers for our other household expenses like pet food or Target runs for household items.
In the past, I’ve let myself get easily discouraged when attempting to budget because we have an irregular income. It seems like every resource is geared to those who’s budget is fixed and can so easily draw up savings goals predictions or debt payoff predictions. Our income has always fluctuated from week to week and month to month- my husband is currently self-employed and a sub contractor; he used to work in sales and had a 100% commission based income. Irregular incomes scare a lot of people, but they truly don’t need to! They take a a little more tweaking and planning, but I believe budgeting can become as easily as it is for someone with a normal paycheck. If you have an irregular income, here are a few things that keep us sane.
How to Budget with an Irregular Income
- We keep a solid list of when our bills are due every month and how much we anticipate them to be rather than just waiting for the bill in the mail. When our paycheck is more than we need, I look ahead to the following week’s expenses and save accordingly.
- We pay bills in order of priority. You can actually find a worksheet for this in the back of The Complete Guide to Money, but the basic idea is that when you get paid, you take that check and divide it among the most important bills FIRST. So, for example, I always make sure the mortgage will be covered before we make our debt snowball payment.
- Going along with that idea- the “four walls” (food, clothing, transportation, housing) have to be priority. On a leaner week that may mean we forgo spending money on entertainment until we can ensure the amount of the next paycheck.
- On weeks you get paid more, save the rest! Your budget has to even out as your paychecks fluctuate. This means you have to break the “feast or famine” lifestyle as we called it- living in scarcity when money is less and feasting and spending when paychecks are bigger. You need to be putting aside enough money for the scarcer times, and if your work is even relatively consistent, this shouldn’t be a problem.
- Budget weekly (or whenever you get paid), not just monthly. For someone with an irregular income you should have an idea of your minimum monthly income- if there were no bonuses, no extra commissions, and a day or two you might not work due to unforeseen circumstances. You need to estimate your monthly income based on that minimum. Then as you get paid weekly you can make an every dollar budget for the WEEK, which is what I will address in my next post.***
- Use “sinking funds” for planned expenses like an inevitable home repair or vehicle registration renewal. This allows you to reserve a small amount every week and hardly notice it rather than having to pay the expense all at once with whatever is in your checking account (or find yourself using credit).
- Get your emergency fund in place. Whether you have an irregular or regular income, RUN to do this.
I used to work at an office where we had a particular client who had a sales based commission that functioned very similarly to my husband’s at the time. This client would routinely draw run up a balance on his account because when he would have slow weeks without many sales, he couldn’t pay his $40 copay. He would let the balance get high, paying several dollars here and there, until he finally got his fat paycheck and would pay off the entire thing at once- at that point up to a couple hundred dollars. It is so easy to live like that with an irregular income, but you have to learn to break the pattern! You can all too easily find yourself in the position without enough grocery money because you spent every dollar of your last paycheck only to have a slow following week. I’m emphasizing this because that is how we lived until we got sick and tired of it. You can break that cycle.
Having an irregular income is not an excuse for not meeting your financial goals or sticking to a budget. You have to learn to make it work for you, and when you do, you will cut out so much needless worry!
***I want to continue to write about what we’ve learned about finances, so I’m creating a little Money series. This is part 2 in the series- find part one here.