If you are a student, a freelancer or a self-employed person who has just started his business then you are accustomed to irregular income. This means you receive payments at irregular intervals and irregular payments both on a regular basis. As you are aware of, the most challenging aspect of irregular income is creating a budget out of an unpredictable income. When you receive your paychecks at irregular intervals, you need to know the art of managing your finances well to stay afloat in days when you are out of work or have delays in receiving payments.
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When you have sporadic income, focus on determining your average income, creating a budget and implementing a money management strategy to keep your expenses in control. Here are some ways that will help you to get started:
If you have an irregular income and you are accustomed to receiving irregular payouts then your first step would be to determine your average pay. In most cases, chances are that people with irregular income do not have an idea of the average money they make. The process can be time-consuming, however, you must take some time off you work and determine your highest and your lowest pay and calculate the average. This process will enable you to establish a budget.
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Making a budget and sticking to it is the first thing you should do to manage your money well. In case of an irregular income, try to create a budget considering your average monthly income.
If you make a budget in this way and can stick to it, you will be able to build up a handsome corpus or make an investment from the excess money you will earn. Whenever you will earn more than the minimum income, the extra amount can be used as the surplus amount and can be saved to fulfil your financial goals.
When you have an irregular income, your spending habits may also be irregular. In months when your income is higher, you may tend to spend more. This habit must be brought under control. This is the point when your monthly budget comes handy.
Make a list of your expenditures and determine the amount you want to spend every month. Set a limit and chalk out your necessities. Since expenses can be of various types consider the following recommendation while listing your expenses:
Group your expenses into categories such as utility bills, groceries, medical bills, travel, entertainment, monthly subscriptions, Internet and telephone bills, etc. Also consider your fixed expenses such as loan EMIs, house rent and make sure to include your savings and investments.
Though this is tough to implement it is not impossible. Once you categorise your expenses, start allocating a budget for each of them. This way you can keep your excessive spends in check and you will not have to face a cash crunch at a later period.
Spending more aggressively will make you compromise on your savings in the days to come. You must be calculative and spend wisely to manage your finances more efficiently.
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Having a contingency fund must top your list of priorities when your income fluctuates. Having a standby cash fund Will help you save your rainy days and will keep you afloat in months where you earn less than your average income. The funds will be a lifesaver when there will be payment delays.
Whether you are a freelancer or a self-employed, you cannot be certain about your payments. Sometimes you may receive your payments early and sometime it may be delayed. To maintain your peace of mind you must be equipped with an emergency fund at all times. This fund will not only support you during medical emergencies or pay for urgent requirements but will also support in days when you have no work.
You can also aim for a cash nest that will support you in days of temporary unemployment. For accumulating this type of fund, make sure to open a separate account and make monthly contributions to your savings. Keep parking any surplus funds in your cash nest and access it only in dire situations.
Having an irregular income is not an uncommon phase in the lives of people who are not employed in 9 to 5 jobs. Situations like these teach you to live within your means and inspire you to manage your finances well. Financial discipline is the key to living a smooth financial life even when you have an irregular income.
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