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How to handle irregular income [Expert roundup]

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7 mins

What if we told you that you could structure your financial life more adequately and beneficially, even if you have irregular income and can’t predict a thing in your budget?

Hard to believe, right? It can be tough-going, of course, but not impossible.

Did you know that only 30% of Americans have a long-term financial plan? No matter whether they have a fixed income or a variable one. Failing to manage your finances fruitfully, you miss all benefits of budgeting like paying off debts successfully, preparing yourself for emergencies, and happier retirement, among others.

Irregular income is one of the most thought-provoking and unstable income types when it comes to personal finance management.

Let’s face it — a traditional budget approach isn’t an option here because you can’t tell the exact sum of money you’ll earn next month.

What is then?

How should you address the problem of managing money effectively if you receive it on a random basis? And what issues may arise when your income is irregular?

Let’s peer into the trickiest ones.

What are the pitfalls of non-regular income?

Apart from irregularity itself (which is already a pitfall from the financial perspective), such type of income provokes certain obstacles in financial planning that you may face:

  • It prompts you to break your good financial habits. Due to fluctuations in sums that you get, it becomes a “teaser” for spontaneous shopping behavior and impulsive buying, for example.
  • You face difficulties protecting your credit score from the unexpected swings when your earnings fluctuate.
  • It prevents you from taking a loan with a long tenure.
  • The risk of getting into stressful and troublesome money-related situations is higher.

How can you flawlessly eliminate all the risks and pitfalls of budgeting with a non-fixed income? Is there a magic calculator to forecast the challenges and handle budgeting properly, when your income fluctuates?

No magic. Your brain + some proven tips from experts on how to cope with a variable income. Let’s look at those, shall we?

5 expert tips for budgeting with irregular income

Expand your list of personal budgeting tips with the top five relevant and highly practical tips on how to navigate fluctuating income in terms of financial stability and security.

1. Identify essential vs non-essential expenses and differentiate between them

Do you live within your means? Are you sure?

One glass of beer or a pack of chips bought today won’t make a difference. You think? This is typical non-essential spending.

“Determine your essential & non-essential expenses and write them down,” recommends Jeff Zhou, CEO of FigLoans. “You should have two concise lists and make sure that your non-critical outgoings are not higher than your essential ones,” Jeff continues.

Here’s a list of essentials:

  • Taxes
  • Rent
  • Loan
  • Groceries
  • Medication
  • Tuition
  • Phone/internet
  • Insurance, etc.

When it comes to planning your budget with a variable income, you need to set smart financial goals and pay for the basics first. Insurance is one of those. Be proactive and keep your budget safe from the unforeseen expenses on your health needs with individual critical illness insurance, for example.

Get a free critical illness insurance quote online in seconds.

2. Manage your savings and spending separately

Heed the call from the CEO of TheAnnuityExpert, Shawn Plummer, who states that “It’s important to separate your spending and your savings accounts. One of the advantages of having split accounts is that you avoid temptations. Like, for instance, a sudden urge to dip into your savings and buy something you’ll regret in the future.”

You should also reconsider your savings if you’re aiming at a 529 plan for your kids’ college education. Untouched funds are crucial for some other life events to financially prepare for, too.

3. Prepare 2 budgets (for better times and for rainy days)

“Why should I bother about a monthly budget (even two!), if I get income randomly and can’t plan anything?”

That’s what you might say looking at this piece of advice with skepticism.

It just so happens that disbelief in the benefits of monthly budgeting is one of the most widespread money myths. And it seems you believe in it too, don’t you?

You can’t expect a financial windfall to happen to you daily, can you?

To play it safe and manage irregular income in a risk-free way, don’t be lazy to work out two specific budgets: for the best month and for the worst one.

“It’s highly advisable that you should have two budgets in case of an unsteady income,” suggests Anthony Martin, Founder and CEO of ChoiceMutual. To form them take the past 24 months and check the lowest and the highest amount of money that you earned per month during this two-year period. Afterward, you take the lowest number as a benchmark for your Budget #1. Your monthly expenses in this case shouldn’t exceed 80% of that sum. So that 20% of it may go to investments and savings. Do the same with the highest number for your Budget #2. Ideally, both budgets should be penned down.” Anthony adds.

4. Make a fund for emergencies

Reconsider your financial planning checklist once again. Have you built some capital for emergencies already?

If not, it’s the best time to do it, because an emergency fund is your go-to solution to stay strong like a rock, even in case of an unexpected financial blow.

“A money reserve set aside for unplanned expenses is a vital component of your financial well-being,” says Grey Idol, Director of Marketing at altLINE. “It’s a financial buffer that keeps you afloat during the hardest times,” he adds.

Grey Idol shares his personal plan on how to build up such a fund:

  • Set a target date for it
  • Create a direct deposit
  • Establish smaller savings goals
  • Savings automation
  • Put away windfalls (like those ten bucks you found in an old book)

You can’t simply avoid all situations that pose an immediate risk to your property, life, or health. But you can always think ahead and protect your budget. For example, cover the risks of specific emergencies and get a short term disability insurance plan.

Get a short term disability insurance quote online.

5. Benefit from zero-based budgeting

It’s a type of budgeting that implies assigning a particular purpose to each dollar in your income. This way, you justify every cent you spend.

Learn all benefits and drawbacks of zero-based budgeting and apply the 50/30/20 budget rule.

According to the CEO of TheKaplanGroup, Dean Kaplan, “To implement a zero-based budget competently, you should keep track of the sources of revenue, analyze & adjust your expenses, and make sure each left-over dollar has a precise goal in your budget.”

But how to arrange everything and make a realistic budget with an irregular income?

Take advantage of a monthly budget calculator that can do the work instead of you.

Ready to handle your fluctuating Income like a pro?

So there you have it – 5 useful tips on how to wriggle out of budgeting pitfalls with a changeable income. Above we have summarized expert advice on this matter and prepared some sure-fire ways to budget with fluctuating income more thoroughly, especially when you embrace DIY financial planning.

Being armed with sufficient recommendations on how to budget with inconsistent income, you can play a game of anticipation and financially prepare for the absolute worst.

We hope you have broadened the list of your personal finance tips and can now sleep peacefully, even if you don’t know how much money you’ll earn tomorrow.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published July 18, 2022
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