How to manage a budget if you have a fickle income

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

You will have to show great diligence to avoid financial problems and maintain a positive balance of income and expenses.

What is meant by volatile income

When you work under an employment contract for a salary, everything is approximately clear with income. You receive fixed amounts twice a month, sometimes bonuses. Cash flows are easy to control and distribute, because you know how much you will receive in a month, in six months and in a year, if no force majeure happens.

But it also happens in another way. For example, you get a small flat salary, and the salary is mainly made up of percentages from deals or sales. And therefore, in the season you can earn large sums, and in the off-season - only for survival.

Or, in accordance with the agreements, money is paid to you after each completed project. Sometimes the project can be huge, so the work is delayed for many months. At the same time, a small advance is provided for it, but a really impressive payment is received only after six months. And so several times in a row. As a result, it turns out that the annual earnings are large, but in some months nothing comes to the account at all.

Another option is to work with small projects. Let's say a copywriter collects orders and gets paid for each of them. He can very roughly estimate how much he will earn from month to month, but he never knows exactly how much.

In general, a volatile income is a situation when cash receipts are either empty or thick. And it seems that it is impossible to plan something in this situation. But, on the contrary, it is in such circumstances that it is imperative to keep a budget.

Why you need to plan a budget when your income is not constant

Usually, the personal budget is remembered when it comes to saving. But it also has a more important function: to make you live comfortably from month to month, without situations when not a penny is left in your pocket. And from this point of view, it is much easier for people who receive a salary to abandon the financial plan.

With irregular incomes, it is extremely important to deal with the budget in order to evenly distribute cash receipts and expenses over the months and to avoid financial problems or at least minimize them.

Moreover, it is worth working in large forms. Planning for a month will not help much, because income is unstable. But if you look at the situation in perspective, for six months or a year, you can live relatively calmly - perhaps without ups, but also without downs.

How to budget

Lifehacker has a detailed guide on how to do this, with examples. If you haven't read it yet, be sure to pay attention. For now, let's briefly talk about the main steps.

Find out expenses

Before you distribute money in such a way that there is enough for everything, you need to understand what you are spending it on. Naturally, you will get the necessary numbers only after some observations. You have to track spending at three levels:

1. Only the essentials. This is the amount that you spend on food, utilities, travel - everything without which it is impossible to live.
2. Moderately comfortable existence. This somewhat large amount includes spending on entertainment, more expensive food and other joys in life.
3. Comfortable existence. This is the amount you need in order not to deny yourself anything (within reasonable limits, of course).

Forecast income

When cash flows are volatile, this is perhaps the hardest part. But you probably have some data to at least roughly estimate the income: statistics of past years, agreements, long-term projects, and even the level of strength and enthusiasm at the moment. It would also be good to predict the amount of receipts in three ways:

1. If everything goes wrong, when there are almost no orders and you work with minimal employment.
2. On a standard load, when you get your average earnings.
3. If circumstances turn out in your favor, and you show incredible hard work. Of course, this figure is hardly worth focusing on when planning expenses. But it will at least demonstrate what you can strive for.

You make an income forecast for a year, and then divide the resulting amount by 12 in order to understand how much money is in each month.

Make a budget

Now is the time to bring income and expenses together to see how they interact with each other. At this stage, you will first begin to understand what kind of lifestyle you can afford and how much you need to tighten your belt so that you have something to buy food.

Adjust budget

Your financial plan is forward-looking. But it has important economic benchmarks that you can rely on. If the situation changes, you will understand how it will affect you and what to do.

For example, you have a good start to the year and are making good money because you are working with a large customer. You also have a few small clients. You are free to spend money according to the second scenario of expenses "moderately comfortable existence". But one day a large customer disappears, your income approaches the “everything is bad” scheme, or even drops below this level. This means that you need to roll back to the first scenario of spending and spend money only on the essentials.

Or, on the contrary, you completed a large order and received a lot of money. There is a temptation to spend most of them at once: well, that's enough for everything. But once you look into the budget, it becomes obvious that this money needs to be distributed, say, for three months. This should temper your enthusiasm a little.

How to achieve financial balance

Save more

An airbag is always needed. Most often, it is equal to three monthly income. With a volatile income, the reserve fund should be larger, as the risk of force majeure becomes higher. And an airbag may be needed to balance income with expenses for a very long time. If difficult times come, you, at least, will not have to switch to bread and water and sit without the Internet, which was turned off for non-payment.

The budget will again help to rationally spend funds from the reserve fund: you have written down all important expenses there and you will not be able to waste money.

Look for part-time jobs

Not putting all your eggs in one basket is a good strategy. If the sources of money are fickle, it is better to have several. When one dries up, even the most profitable one, you are left with others to help make ends meet.

Perhaps, in money times, you shouldn't take the second, third, tenth project in addition to what you already have. But the connections where you can quickly get a job are best kept warm and your reputation impeccable. Then, at a difficult moment, you will literally make two calls and one post on social networks to rectify the situation and find orders to replace the lost ones.

Shift income by a month

With a constant income at the beginning of the month, a person receives a salary for the previous one and spends it calmly, knowing that in 15 days he will receive an advance. If you are not constant, you cannot afford such a luxury, since it is difficult to be completely sure how much you will receive and whether this amount will be enough.

But you can try to taxis for spending with an offset of a month. Let's say you received income at the end of December and must spend it in January. But it will be somewhat more effective if you start spending this money in February. This shift allows for a much better understanding of the personal financial situation.

Let's say you received 50 thousand in December. In January, because of the long weekend, your income was only 10 thousand, but you only found out about it at the end of the month. If you acted according to the standard scheme, you could spend all December income in January and stay with 10 thousand. And if they used the offset, then 50 thousand would go to February, 10 - to March. And you would have had room for maneuver, namely the opportunity to understand that you need to save a little in February in order to live normally in March.

Naturally, the transition to such a system will require a buffer period. You can't just spend a month on nothing to start spending a month later. But this approach will better ensure your financial freedom, so you can put in some effort.

Pay yourself a salary

This strategy is suitable for those who receive quite a lot, but extremely irregularly. You can transfer money to a separate account, and then return a certain fixed amount once a month. That way, you know exactly how much you can spend, and you don't spend too much.