Budgeting with unstable income?

[James Hayden]

Is it possible/practical to create a budget when one's income fluctuates unpredictably? I'm interested in growing financially, and having just scratched the surface, it seems that a lot of the information that is readily available is geared toward people with well-established incomes (ie. working 9-5 in a cube).

The main idea behind creating a budget seems to be to increase one's awareness of where their money goes, so if that is the case, perhaps simply logging my expenses will have to suffice for the time being.

[Michelle]

It all depends on what your expectations and wishes are for your lifestyle. If you want more security start by setting up an emergency fund for yourself where you contribute a percentage everytime you get paid. Also, if you are dying to have a budget you could look over your earnings during the last several years and come up with a monthly spending/saving plan for yourself based upon your average earnings. However, I suspect a budget may be too constraining for someone who is comfortable enough to handle the insecurity of irregular income.

As a musician, my income is also very irregular. Budgeting has never worked for me.

When I have money I tend to enjoy it - I will pay bills, buy great fresh food, a bottle of champagne, perhaps some new clothing or something for the apartment. When I have little or no money I adapt my lifestyle in order to get by until the next money comes.

I do have financial worries, however having little money has always been a small price to pay for being able to do exactly what I want with my life.

[dcaldwell]

My income is irregular, as I work with start-ups and small(er) businesses. It often fluctuates on a weekly basis anywhere between several hundred to several thousand. You're exactly right in saying most of the advice is meant for stable earners. A budget, in my opinion, is only valuable if you find a way to actually meeting it. Otherwise, not meeting it can be a (perhaps unnecessary) worry in itself.

I've found with irregular income, trouble is caused more when you get a sudden influsion of money -- that is, you have to figure out how to correctly rebalance your payables -- than dealing with the low points. What's most important is being able to match your bills' payable time-frames against a calendar and your cashflow (weekly, bi-weekly) so you always know how squeezed you are. There's nothing worse than worrying about a payable when you've got another half-month to make the payment.

For the low points, know exactly how much you need to survive (roof, food, electricity, maybe vehicle, stuff directly related to performing your job), and ensure that minimum is somehow met. That you can budget for.

[silicon toad2000]

as you increase the sample size of your income eg, go from weekly to monthly to yearly you should find the variations/fluctuations decrease.
Perhaps look at a monthly budget or bi monthly budget to try and smooth out the fluctuations.
Perhaps see an accountant for advice more suited to your exact circumstances.
I would be looking at income over a larger span of time, compared with expenses and allocate income as it comes in proportionately to the expenses, maybe set up a few bank account for specific expenses you can pay into proportionately or something like that. My expenses fluctuate quite a bit, I make use of the due date flexibility to make things fit, some weeks i am all up to date with bills looking at what the next bill due to come in might be so I can make an early payment to the vendor before the bill comes, other weeks I might be getting past due notices.
sorry if this was a bit vague i think i went off on a bit of a tangent.

[RT Wolf]

Getting Finances Done » Budgeting on a self-employed or irregular income

I love that site.

[Pat P.]

In my opinion, budgets tend to fail because the plan is unrealistic, the categories of the budget are too broad or leave out foreseeable expenses, and because people avoid making adjustments to the budget when a new situation arises (extra income or extra expenses); budgets can and should be modified to suit changes on the situation, with the exception of impulsive buys.

Now to the question, can you do a budget with irregular income? I believe it can be done, but not in the sense that a regular income earner would do it.

You should plan to spend the money according to a set of priorities (defined by the person preparing the budget). Typical priorities put food, shelter, savings, and utilities at the top of the list. Since most of expenses are more or less predictable (rent/mortgage, food, utilities, insurance), you must be able to provide for at least these categories. If you are not, then you need to find a way to boost your income, or to complement your income with some regular income.

Some people argue that budgets don't suit their lifestyle. They are impulsive or enjoy life. This can be solved by adding a "blowing money" category to the budget. Try that it doesn't consume the whole budget .

Other issue that busts budgets are foreseeable expenses that don't occur every month. For example, quarterly taxes, insurance premium, dental procedures, tuition fees, are expenses that can be planned for, and hence, can be included on a budget.

Finally, budgets take time to fine tune. On our family, it took about three months to get it right, so don't get discouraged.

Pat

[Jes]

I don't have a stable income, so I just record every penny that comes in and every penny that goes out. At the end of each day/week/month/year/decade, I review and see where I can save money next time. If you just start doing that, after a few months (or---even better---years), you'll know exactly what you can and can't spend.

Most people say "you have to make a budget," implying that you have to set limits or boundaries based on a fixed income. It's really not about that. You have to track your finances, and that can be done regardless of whether you're unemployed, 9-5ing, or living off the dividends from your billion dollar investments.

[rene_stpierre]

To have a budget or not depends on each individual's perspective.

I believe it is very important to know where the money goes so you know what is wasted and what could be saved VS what are the true essential expenses.

As far as your regular income is concerned. If possible, create a fund (special bank account) where all your income goes (make sure to build it up to a few months of expenses). Then plan for weekly, bi-weekly or monthly transfers (always the same amount) to a chequing account that you use on a regular basis to pay for expenses.

That way, the money available each month will always be the same.

Good Luck!
René