Tips for Budgeting for Irregular Income

How about a useful post?  One of the common “excuses” for not doing a budget is “I never know how much money I am going to make/bring home because I am not on a set income.”

Bah!  (Fiddlesticks!)  That excuse is just weak!  If you work on commission or tips you can still make a budget.  Irregular income is no excuse, you still need a battle plan for your money.

While most of our household income is fixed (about 75% of it) I still bring home some irregular income because I work on tips.  I still need a plan for what to do with that money, or it ends  up burning a hole in my pocket and “disappearing” like unbudgeted money usually does.

When you don’t have a guaranteed income level, you need to shift to a prioritized spending plan, where you list out your expenses in the order of importance.

If you have no fixed income, then your entire budget is a list of spending priorities:

  • Food:  should always come first!  This is grocery money, not restaurant money, with the absolute bare minimum amount listed.
  • Housing/shelter/utilities:  You need a roof over your head and your heat and electricity and water to stay on.
  • Transportation: this is where the vehicle notes, driving insurance, and gas money if you have those expenses, or a bus pass if you use public transportation.  Everyone needs a method of getting to work and back.
  • Necessary clothing: Clothing required for work or growing children, and you should probably budget the bare minimum and put “wants” further down the list.
  • Insurance: health, life, and disability insurances are all part of a good financial plan.
  • Minimum payments for debts (if owed):  Down here is where you put the minimum payments for things like credit cards, NOT above housing!!  I have never understood why some folks will pay their credit card bills before buying groceries or paying their rent/mortgage.
  • Discretionary spending: HERE is where all the fun stuff should be … below all of the necessities.  This is where eating out money and vacation spending and fun stuff belongs.

OK, so what happens when you run out of money before you run out of list items?  You draw a line where the money runs out.  Anything below that line doesn’t get paid.

Dave Ramsey tells a very humorous story of when that happened to him, and he got a collection call for some company “below the line.”  The collector was quite shocked when Dave Ramsey explained he couldn’t pay that bill “because you’re below the line,” and what that meant.

The collector (who had been exceptionally rude at the beginning of the call) asked how he could get above the line.  Dave Ramsey quipped, “You be nicer when you call,” and hung up.

It’s a humorous story (especially with him doing the different voices) but it illustrates a very important concept.  When you make your prioritized spending list, you do not deviate just because someone is trying to bully you!  The priority list is set in stone, unless an emergency comes up and YOU make the decision to change it.

In fact, with the prioritized spending list, you can break it up by pay period to better control where your money is going.  This is often easier to do than a monthly budget.  This gives you a plan of exactly where your money should go before you get paid, even if you are not sure how much you will bring home.

If it’s a really really great pay period, and you run out of list items before you run out of money, what to do then?  Rather than blow it on fun stuff, I would recommend starting on the next pay period’s list or put it into savings as a cushion for when you have a bad pay period.  But that one will be up to you.  After all, it is still YOUR money.