The combination of technology and the recession has given rise to a whole group of freelancers and other home business owners who no longer have a set income, courtesy of “the man.”
Having a variable income presents certain challenges when it comes to budgeting. With some planning, though, it is possible to create a working budget that allows you to meet your needs, and even take care of some of your wants.
Understanding Your Expenses
The first thing to do is figure up your regular expenses. Go through your spending for the last couple of months. If you have personal finance software, or use some sort of web app to track your spending, this can help.
Get an idea of what you spend on groceries, housing, utilities, entertainment and other items. You should also plan for putting money into a retirement account and saving up for emergencies.
Figure out which things are most expendable. For instance, if you run into a lean month, you may need to avoid eating out, or you may have to buy fewer treats at the store. Prioritize your spending so that the most important expenses are at the top of your list. This way, you are prepared if something needs to be axed some month.
Understand Your Income
When you have a variable income, it is vital that you understand where it is coming from. As a freelance writer, my projects shift about fairly regularly. However, I do have some core clients that provide me with regular work that I can rely on month to month (at least for now). You should also take into account long-term projects that may last two to six months.
When you have a variable income, it is important to add some diversity. I have one client that accounts for about 1/3 of my income. It’s a little scary to think what happens if that client suddenly folded. However, the remain 2/3 of my income, plus my husband’s assistantship stipend at the university, is more than enough to cover our expenses. Consider making sure you have income from enough sources that the loss of one won’t devastate you.
Preparing for the Future
The main point about a variable income is that it is, well, variable. This means that you have to prepare for the future. Try to fit your expenses into what you can count on most months. On months that you make more than that, set money aside in a high yield account. That way, if a project falls through, and you make less than your average, you can draw on your reserve to help make up the difference.
Your variable income budget is always going to need some tweaking. It is important that you pay attention to what is happening around you, and in your industry. This is especially important if your entire household is dependent on a variable income (no job for your life partner, or part-time job for you). Without some preparation for the future, one or two bad months can financially devastate you.
Video Tip on Variable Income Budgeting from Crown Ministries
Here’s a video tip from the folks at Crown Financial Ministries, the makers of Mvelopes.
How do your manage your budget if you have a variable income?