My husband and I have built our entire life on unsteady income. Whether it was piecing together income from multiple part-time jobs, working on commission, or living off of student loans (which I do not recommend, but have done anyway), we always find ourselves in a position of having irregular income.
Currently my husband is in grad school, so we are living on my income as a substitute teacher. Because of the nature of my job, my income fluctuates from month to month depending on the number and type of jobs I work. It can be difficult to build a consistent budget when your cash flow is unreliable. But we do it anyway, and here's how:
Scenario One: You have enough money, and sometimes you have a little extra.
At first glace this seems like it's not that complicated at all. You've got enough and a little extra, what can go wrong? Well, the problem is if you sometimes have extra, you get use to spending extra all the time, and then when you only have enough, you still spend extra and end up having less than enough. Fortunately there is an easy solution to this.
Picture your money as water, and your expenses as pots that need to be filled.
All money you earn goes into the first pot. For me the pot is a savings account attached to my checking account. It is easy to get to when I need it, but I can't spend directly from it.
Every month a set amount is moved from pot one to pot two. Pot two, for me, is my checking account. I move over the same amount every month to pay my bills from. This amount is predetermined by the monthly budget we have set for our family. If I run out of money during the month, I don't just dip back into the savings account for more money. We tighten our belts and ride it out until the next month when we transfer our regularly scheduled amount into our checking account. This allows the extra money that we make some months to accumulate over time, instead of just trickling away and disappearing.
Of course we have emergency expenses. And if they are true emergencies, then we pay for them out of our emergency fund. We keep several separate savings accounts for different types of expenses. All of them have varying degrees of ease with which we can access them, depending on what they are meant for.
Scenario Two: You don't always have enough money each month to pay your bills, and operate on a feast or famine cycle.
It probably goes without saying, but this should not be your long term lifestyle. There are a few jobs where this might be common and acceptable (like sales or seasonal work), but they are few. You can survive like this for a while, but sooner or later you are likely going to have to make a change. Either you need to find a better job and earn more money, or you need to take a hard look at your expenses and find places to make cuts. For now though we'll assume that this is a temporary situation (like working your way through school) that you just need to survive.
In this situation your first pot is your checking account. All money starts in this pot. Now you'll need to order all your expenses by priority. You may order them something like this: housing, food, electricity, insurance, gas in your car, phone, debt payments, cable, fun. Of course your list will look different based on your family's needs. Consider this list of expenses as other pots.
Anytime money goes into your checking account, you will automatically start pouring it into your other pots. If your money is coming in at random intervals, than whatever day the money goes it, that is the day you start sending payments out. Always fill pots (or pay bills) based on priority. When you don't have enough money to go around, priorities are what keep you from losing everything. There is no point paying a cable bill for a house that just got the electricity shut off (or worse, a house you lost all together!).
Let's look at a sample month:
House $850
Food $400
Electricity $120
Insurance $180
Gas $75
Phone $60
Debt Payments $240
Cable/Satellite $80
Fun $100
So if I were using my list of posts and I earned only $1300 this month, I would first pay my house payment, then buy my groceries. That would only leave me with $50 left, so I stop spending and wait for the next paycheck. If I earn more money that month, I continue down the list and pay my electricity, insurance, gas, etc. or whatever I have left to pay for that month.
If I don't earn any more money that month, then when I get paid the next month, I start over at the top of my priority list, and pay rent first. It is important to remember to start over at the top of your list every month. If this means you are going to be missing a phone payment for several months in a row, that is still better than missing a house payment. Better to have your cable TV shut off than your electricity. But again, if this is what your budget looks like month to month, it's time to look at your lifestyle and brainstorm areas where you can make changes to either your income or your expenses. Sometimes it is difficult to see the pitfalls in our own budgets, so ask a friend with a similar income how they are managing, and perhaps they can suggest areas where you can make a change.
Now, looking at this same budget scenario, let's assume that one month you earned $2500. Your listed expenses only total $2105. So do we spend an extra $395 on fun? No. You already spent your budgeted $100 on fun. Do we pay down a debt? Probably not. Not unless you can pay off a debt completely. If you are failing to make ends meet month to month, any extra cash needs to be held onto for the next month's bills. Let's say that again. If you are failing to make ends meet month to month, any extra cash needs to be held onto for the next month's bills. A little surplus one month can help ease the pain of leaner months to come.
Marcia
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