Do you have a job in sales that pays on a commission basis? Or do you work in a field that pays irregularly like construction or landscaping where you only work if the weather permits? It is hard to budget and stay on track financially when your income is irregular. There are 3 budgeting tips to use when you have irregular income that will keep you finances in order.
A little bit of background, we follow the Dave Ramsey budgeting system and if it was not for learning his simple steps to budgeting, which are below, we would not be in good financial shape.
3 Budgeting Tips to Use When You Have Irregular Income
Hill and Valley Fund
Simply put, a Hill and Valley Fund is in and of itself a savings account. It comes in handy for people like yourself that have a variable income or one that is unpredictable. When you work in a job that pays per diem or on a commission basis, bills keep coming in but you may not always have any money going out. To avoid this, you have to create a Hill and Valley Fund. Also, in case you did not know, the term “hill and valley” means when your savings is at a peak you are on the hill and when savings are low you are in the valley.
The first step is to write down ALL your bills that you pay on a monthly basis. This will determine what your cap will be. The cap is the absolute amount you need every month to pay your bills. Such as your mortgage, utility bills, car insurance, credit card payments, etc. Once you have figured out what your cap is you know that you have to meet this amount every month for your basic necessities.
The second step is to start contributing a certain dollar amount to the fund for when you are in the valley. You determine the amount you are comfortable with so you can pull from it when you need to.
If you feel you have no money left over to contribute to a Hill and Valley Fund, consider reducing the expenses that are controllable. For instance, learning to save more at the grocery store, not having your hair cut as often, selling items you no longer use or trying to do a no spending week or two.
A Sinking Fund is a fund – or in our case an envelope – that you contribute a certain amount of money to every paycheck. A Sinking Fund is a big expense that you know is coming up that you put aside a designated amount into to prepare better financially. An example would be a family vacation that you take every year or something smaller like a certain amount you donate to a charity yearly.
Our Sinking Funds are: Christmas, (Matthew’s) College Fund, Property Taxes, Car Insurance and Property Insurance. We disburse $900 a month across the board every month to these Sinking Funds.
To get you started with contributing to your Sinking Funds, consider saving a portion of your income tax refund check or if you are currently involved in a lawsuit and are expecting a payout, dispense a portion among each of your Sinking Funds. However, one thing to remember is if there is a month or two where you cannot contribute to your Sinking Funds, either reduce the amount you put into each Fund or skip contributing that month.
I first became aware of an Emergency Fund from reading The Total Money Makeover by Dave Ramsey.
Investopedia’s description of an Emergency Fund is this:
“An emergency fund is an account used to set aside funds needed
in the event of a personal financial dilemma, such as the loss of a job,
a debilitating illness or a major expense.”
The simplest way to figure our how much your Emergency Fund should be is figure out what your BASIC needs are to survive. For us, I calculate what our monthly expenses are for our utility bills, grocery budget, gas money, insurance and other necessary expenditures.
After my husband’s first layoff, before beginning our Emergency Fund, I asked myself:
What is the bare minimum we would need to contribute to per month to live until our lifestyle went back to normal again. Once you get that number multiply it by 3. For instance, if the bare minimum that you need is $2000/per month, you need $6000 to build up your Emergency Fund so that should an emergency occur, you will be fine financially for 3 months.
Lastly, if you truly want to get in control of your finances quickly, consider selling items you no longer want, slashing bills that you can control and utilizing some of these ways to extra money. And before long, you will be financially fit as well.
Also, let me know if you use or are going to start using these 3 budgeting tips for irregular income. Let me know if you have any other questions or need help.