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There are more than 15 million Americans who are self-employed, and many others who work on straight commission. That means these people deal with an irregular income—income that comes in at different amounts or at different times, or both—on a regular basis.
Whether you’re in sales, a freelance writer, an interior designer, or any other self-employed worker, you know the challenge of budgeting for an unpredictable income. Sometimes it can feel like you’re aiming at a moving target!
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The good news is that it’s just as simple to plan for an irregular income as it is for a regular one. We’ll show you how with these three easy steps:
1. Create a budget.
When you make your budget, base your income on your lowest-paid month from the previous year. (We’ll cover how to handle more or less income in step three.) Then list all your expenses—everything from the electric bill to retirement savings to groceries. If you’re a pen-and-paper budgeter, our free Monthly Cash Flow Plan form can help you here. Or, if you prefer a digital budget, check out our free budget app EveryDollar. After your expenses are listed, put the amount you’ll spend next to each item, such as $100 for the cable bill or $200 for eating out. Once it’s all in front of you, the next step is to list your expenses according to importance.
2. Account for irregular income.
Now that you’ve got a basic, bare-bones budget, it’s time to plan for any income you bring in over that worst-case scenario you sketched out. Use our free Irregular Income Planning form or EveryDollar and list all other possible expenses you couldn’t cover in your budget, in order of priority. Ask yourself, If I had enough money for one more thing, what would it be? Mark that down. From there, continue to list expenses from the most essential to the least. Do this according to your needs. Don’t let some credit card collector scare you into thinking that paying them is a bigger deal than buying your child’s school supplies. Now that the plan is set, it’s time to spend.
3. Go down the list.
When you receive a paycheck, take the amount and spread it out among the items in your budget, prioritizing food, shelter, clothing and transportation. After that, cover the rest of your bills. If your check doesn’t cover everything listed, that’s okay. Use it to pay as much as you can. If you get an additional check during the month, pick up where the last check left off. If you end up with extra money after all expenses have been paid, then you can save more, spend more, or pay more on your debts. (If you have debts, definitely start paying them first!)
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Your paychecks may be for different amounts, but with a plan, you can use them all to get one solid result—financial peace. It’s only three steps away!