Budgeting on a Fluctuating Income

Not everyone gets a steady paycheck. Some people, including business owners and those who rely on tips, have to live with fluctuating incomes that can make budgeting a little more complicated. These tips should make it easier for you to follow a budget, even if you can’t predict exactly how much money you will make next month.

#1: Create a Quarterly and Annual Budget

Your income might fluctuate from week to week, but you probably earn about the same amount of money from year to year. When you take a step back, you can see the patterns in your income and spending.

Use that information to create quarterly and annual budgets. If you made $15,000 during the first quarter of last year, then base this year’s budget on that amount. With any luck, you’ll actually make more money than you did last year. Taking a pessimistic perspective makes it more likely that you’ll end up with excess money instead of falling short.

#2: Know How Much You Need to Make

This tip shouldn’t encourage you to aim low. It just encourages you to know how much money you need to make to pay your bills. If you know that you need at least $2,000 this month to pay for your mortgage, utilities, food, and other expenses, then you can focus on reaching that goal.

Use this as motivation when you find that you aren’t earning as much money as you would like.

#3: Build a Financial Cushion

Knowing how much money you need doesn’t necessarily mean that you will be able to make that amount.

It’s possible that you might make less money during a quarter than you did last year. If you have a financial cushion, that won’t force you to create a new budget. Instead, you can use money from that cushion to maintain your current lifestyle and investments.

You should have at least ten percent of your annual income saved in an emergency fund. That might sound like a lot, but it’s the only way to make sure a few bad months don’t ruin you financially.

#4: Save for the Lean Times

If you know that you make more money during certain times of the year, then you should conserve some of the money from your busy periods to pay for expenses during slower periods. Companies do this all the time. It’s one of the reasons that retailers spend so much time promoting holiday sales. They rely on those sales to make them profitable by the end of the year. You should take a similar approach with your fluctuating income.