Budgeting when you have inconsistent income

I have a fairly steady income and have set our financial lives up in a way that we rely on the income monthly and budget accordingly. Assuming we stick to budget (which we do) everything is pretty easy to manage and is somewhat automated.

There are however people out there who don’t actually have a consistent income. This could be in the form of just one person or both people in the family having inconsistent income. Sole traders may find it difficult to manage cash flow and cannot completely control when debtors will pay their bills. People may work casually during peak times, or on contract, or have specific projects to work on for a period of time, until that project dries up.

How we each make money can be very unique and there is no right or wrong, but I am a traditional earner (at the moment anyway), and am not as inventive as some of my friends.

I wanted to write a post about the best ways to manage money when you can’t always rely on a steady and consistent income, so I had to do a bit of research on this one, and ask one of my closest friends exactly how she does it. I was super impressed with what she came back with, which to be honest didn’t really surprise me, she is a phenomenal person.

My friend, let’s call her Bec (because that is her actual name) is super switched on when it comes to her finances, and she has been rocking an inconsistent income for a few years now. I decided to go straight to the source to get her best tips for people in a similar situation. To give you the lay of the land, she currently has a steady income, her husband does not, but does bring in money from a variety of areas including a business run from home. They have a mortgage, a son and a dog. Quite the family unit.

Like me, she has an epic and automated spreadsheet, and I think the consistent message is to always know where you are at financially. Her budget is not the same as mine, but she has one, and she knows how much money she does or doesn’t have. Knowledge is power after all.

So then, what are the tangible ways that you can deal with your finances if you don’t have a steady flow of money?

• Have (at least) a weeks’ worth of expenses in a savings account. This is separate to your general savings to ensure that if you go 1 week without income, things will be ok. I am personally an advocate for at least 3 months of expenses in cash, but when cash flow is not as free flowing as you would like, a week is the bare minimum.

• Try and be in credit for all bills. You can pay bills more regularly than once a quarter, you can pay them weekly if you like. The beauty of this is that you can pay little bit by little bit so that you don’t receive a huge bill every 3 months. For the weeks that you earn more money than you expected, pay extra off of your bills or pay part of your bills in advance so that if you have a tight week you do not fall behind. You can figure out your approximately  weekly bills, just by taking your most recent bill, for example the quarterly electricity bill, and dividing it by 12. That will be your approximate weekly electricity expense. You can set up a Bpay into your account with a weekly amount that you have estimated based on your previous house hold usage. If you can afford a little bit extra one week, try and get ahead to accommodate for the
  tighter weeks.

• If you do find that you can’t afford to pay a bill one week then ring the provider and tell them. Creditors can be very understanding if you call before the due date and arrange an extension. They are far less accommodating if they have to ring and chase you to pay a bill.

• Get creative with how you earn your money. If you can bring in money from more than one source, you are less likely to go without at least some income. It’s also important to admit when you are having a tougher than usual month and you may have to get a touch more resourceful to make ends meet. Something Bec has done in the past, is assess what they no longer need that could be sold on Ebay. Alternatively it might be the perfect time to take a trailer full of old stuff to the local market and make a few bucks.Back when I used to live with Bec and her husband, I literally saw them make money out of nothing. You know that day where you put all of your old junk out the front of your house and the council picks it up the next day? Well Bec’s husband found a stash of someone’s old vintage suitcases. This was junk to someone else, but happened to be gold for these guys. They sold on Ebay for $80 a pop. That is not bad for not having to spend a cent.

• Make sure you continue to communicate. Have little planning meetings so that you are both on board with your family situation. It’s important to do a bit of forward planning and think about jobs that you have got coming up over the next few months. If you look at the figures and it’s not enough, then you have time to figure out if there are other ways to bring in a little bit of extra money.

• If one person in the couple has a fixed income, then try and base the maximum of your expenses on that one income. All extra income earned can be for saving and investing. Your total expenses should not be more than the one steady income if you can help it.

• Make sure you keep all your receipts. For those who do freelancing or work under your own ABN, you will have a myriad of expenses that you can claim as a tax deduction. The more tax deductions you have, the less tax that you eventually have to pay. Every cent counts remember.

There are ways to budget even when you don’t have a consistent income, so there is no excuse. In fact, I would argue that having a budget is more important when you may not know where your next pay is coming from.

Thanks to Bec for the helpful insights. For anyone out there in a similar situation, please feel free to add any tips or advice below on how you manage your finances.

– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.

Posted in: Financial Planning and Cara Brett