Because not everyone works a salary-based 9 to 5 job, irregular income is an issue many people deal with. Especially the self-employed, that includes freelancers, independent consultants and those involved in direct sales and multi-level marketing. Irregular income also affects those who are employed in commissioned sales positions like real estate agents (a/k/a Realtors), car salespeople, home inspectors and insurance adjustors, just to name a few.
Start with a baseline budget
Here at MakeDollarsMakeSense, you know we’re all about having a monthly budget – no matter what kind of income you’re on, and we advocate establishing a standard, or baseline, budget that you can adjust as necessary each month. This works well for most types of employment, especially salaried and hourly workers and those on a fixed income (pension, disability, Social Security, etc.), who can get at least a rough idea of what their income will be each month.
But what do you do when you don’t know if you’ll have one sale or ten this month? Or even if you’ll earn enough to cover the basics?
As someone who has recently gone from earning a salary to becoming a freelancer, I’m quickly finding out that finding work is not nearly as easy as finding bills (they always seem to find me – I don’t have to look any farther than the mailbox).
So what are we to do?
Ideally, you will have something in savings that can help you through the lean times. That’s how we make it around here – we have a few different savings accounts:
- Emergency Fund – This is where we’ve got our 3-6 months of living expenses that we won’t touch except in case of a dire emergency. We have this in a regular savings account at our primary bank; it doesn’t pay much in the way of interest, but it also won’t cause us to incur a penalty if we have to use it. (NOTE: It was closer to 3 months when I was employed and on a salary. We bumped it up to 6+ months now that I’m freelancing.)
- Slush Fund – This is where we keep the money we can use to live on when our monthly income won’t cover the basics. This is not as much a “savings” account, as a slush fund that we put into when we can and draw from when we need to. We keep this in a basic, free checking account at our primary bank. We don’t have checks or a debit card, we just move money between it and our regular checking account via online banking and our mobile banking app as needed.
- Future Stuff Fund – We keep this fund at our secondary bank because it’s where we save for stuff we want, and we don’t want to see the balance when we’re doing our normal banking. This is where we save for stuff we will need like car and furniture replacement and also for stuff we want like vacations and travel. We like to have some money set aside just because, and here’s where we keep it.
- Specific Fund – We’ve also been known to set up separate savings accounts for certain things that we plan to buy.
Banks don’t care how many accounts you have. Per their metrics, the more accounts and services a person/household has with a given bank, the less likely they are to go to a competitor. So, don’t hesitate to open as many accounts as you need to keep your finances the way you want them.
Granted, we’ve been working the plan for nearly 15 years, so we may be a little further down the path. If that’s the case, you may be asking:
But what if we don’t have savings?
“The best time to plant a tree is 20 years ago. The second best time is now.” – Chinese Proverb
We all have to start somewhere, and if you’re starting the budgeting process and realize that you’ve got no way to cover your monthly expenses if your irregular income is not enough, this is where you start:
Start with the basics
- Food – It’s a biological fact: Human bodies need food to function. Now, our bodies don’t need steak and lobster, and we don’t need to eat at restaurants, but we do need food. When you’re budgeting an irregular income, the first place you put money is toward basic food. Notice I said basic food. PB&J, ramen noodles, beans & rice. Prepare your food at home and brown bag it wherever you need to.
- Shelter – Here, we’re going to slightly redefine “shelter”. When you’re stretching dollars, you’ve got to put them where they will do the most immediate good. So, I’m going to tell you to hold off on paying the mortgage and rent – IF, AND ONLY IF, YOU ARE CURRENT ON THEM. If you’re already behind on your rent and mortgage, that’s a topic for another discussion. Let’s assume you’re current on your rent/mortgage, and you’re budgeting irregular income. In that case, “shelter” consists of the things that keep your place inhabitable – lights, heat, water, sewage, trash. If you don’t pay your light bill, the power company WILL shut you off, same with your gas, water, etc., so make sure to keep these bills paid. Most cities have ordinances about how much notice your landlord must give you before you get evicted, so you’ve probably got some time to catch up on your rent. If you’ve got a mortgage, most banks won’t start foreclosure proceedings until you are 90-120 days delinquent.
- Transportation – You’ve got to get to work, so make sure you’ve got gas in the car and your car insurance is paid. If you take public transportation, this is where you keep your transit pass updated. This also assumes you’re current on your car payment – put your car payment at the bottom of this basic priority list (many banks will repossess your car if you become 45 days or more past due).
I’m not advocating you get past due on any of your bills. My goal here is to help you prioritize what things are the most important when you don’t have enough money to cover everything.
Remember: if you get behind on your bills or debts, you will have to get caught up at some point – like next month – and getting caught up can be very tough (not to mention very discouraging) so don’t do it if you don’t absoultely have to.
Keep the basics basic
Some of you may have picked up on some of the “basics” that I left out. Let me say, for the sake of clarity, that I didn’t omit anything by mistake. Cable and Satelite is not a necessity; neither is Netflix, Hulu, SiriusXM, Spotify, Candy Crush or any of the entertainment services and apps that are so common. (Reminder: When every dollar counts, don’t forget about the things – like apps – that you have set to automatically renew each month. Canceling unnecessary services can help you ensure you have money for things that really matter – like the basics above.)
You may also not NEED your phone. If you need a communication device, could you get a $15 prepaid phone instead of your $70 data plan? Consider your true needs when budgeting irregular income. Every dollar you spend on one thing is one dollar you can’t spend on something else.
Your situation may be different
I also did not include Internet service in the above list, but if you work from home like I do, and rely on the Internet for your livelihood, you may need to pay your broadband bill; however, if you’re cutting back on streaming services, you may be able to downgrade your plan to something cheaper. You probably don’t NEED that megabit connection to run your eBay or Amazon store, anyway.
What about medication?
By all means, make sure you have all your necessary meds! However, you might take this opportunity to look for programs that can help you pay for them. Many of the drug companies have such programs. Ask your pharmacist, and Google for help finding them.
Don’t stop here
This is not the end. It is just the beginning of where you’ll spend the first precious dollars you earn. As you earn more money, you’ll be able to pay for more and more things – stick to the baseline budget. Make sure you know which items in your budget are true needs and which are wants. Needs are things you can’t live without – food, shelter, transportation, clothing – not things you don’t want to live without (phone, cable, apps, etc.).
If it looks like you are not earning enough money this month to cover your budgeted expenses, you’ve got a couple of options: you can cut expenses, or you can generate more money.
“The best place to go when you’re broke is to work!” – Dave Ramsey
Odds are, if you don’t have the work you need to keep your bills paid, you have enough time on your hands to earn some money. Find gigs on Craigslist. Drive for Uber and/or Lyft. Go through your closets, storage units and garages to find stuff to sell on Facebook, Craigslist, LetGo, 5Miles or any of the other multitude of sites available to offload the stuff you don’t need anyway.
You CAN do this!
Your situation is NOT permanent. It may seem daunting right now, but please stick with it. Giving up will not only not help you, it will hurt you in the long run.
You are doing the right thing by making a budget and being careful about where your money goes.
Stick with it, and you will be rewarded for your efforts.
Tell me your story in the comments below. I look forward to hearing from you.