HOW TO BUDGET WITHOUT A FIXED INCOME EASILY

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Overview

I’m pretty fortunate in that my wife and I have extremely stable teaching jobs with incomes that remain pretty fixed month to month. Notice I said fixed, not high. We’re still teachers after all. But, I was thinking today about the fact that many people, maybe even most people, don’t operate on such a predictable income schedule. I want to address how to budget without a fixed income here.

Budgeting with a variable income is very similar to budgeting with a fixed income, but there are a few extra steps you’ll want to take to ensure success. These steps include:

Establish Your Baseline Budget
Get Ahead With A “Bad Month” Fund
Stay Ahead On Your “Bad Month” Fund
Adjust Your Budget As Money Comes In
Make This A Recurring Monthly Process

Taking these 5 extra steps in building your budget should help ensure you are able to stick to your plan. Let’s explore each piece of this puzzle a little more closely.

How To Budget Without A Fixed Income, Part 1: Establish Your Baseline Budget

The first thing you’ll want to do is get your budget in place. I have an entire series on how to do this that I’ll link here:

Build Your Winning Budget

As you go through this process, you’ll want to approach it with a slightly different mindset than someone with a more fixed income.

Someone with a fixed income will know exactly how much money is coming each month, and will design a budget that assigns every dollar a name.

You’ll do the same. But, you’ll base your budget on what you believe the minimum amount you can expect to earn monthly will be. In other words, take your income from a month that represents a “bad” month, and build your budget from that. This may not be your worst month ever, just one of those months that happens occasionally. This is your Baseline Budget.

By establishing a Baseline Budget, you’ll have a plan that you can pretty much expect to work every month without needing to make cuts. Instead, all your adjustments will be up.

How To Budget Without A Fixed Income, Part 2: Get Ahead With A “Bad Month” Fund

But, you say, what about when I do have the worst month ever? Won’t I need to make cuts? Maybe not…

The next step to ensuring your success is to build yourself a bad month fund. This is NOT your emergency fund. This is the fund that protects both your emergency fund and your budget.

See, that worst month ever is coming. We know it’s going to happen. And, it might be followed by the worser worst month ever. You need to be prepared.

Take time, after building your emergency fund and before getting deep into other sinking funds, to set your bad month fund in place. That way, when you do have a month or two when you can’t stick to your baseline budget from your monthly income, you have somewhere to turn without putting yourself in financial danger.

How To Budget Without A Fixed Income, Part 3: Stay Ahead On Your “Bad Month” Fund

Now, once your bad month fund is in place, you’re not done. You need to keep it funded.

If it were me, I’d treat this as a sinking fund, and continue to contribute a small amount each month so that it continued to grow.

The same rules that apply to your emergency fund apply to your bad month fund. If you use it, you’ve got to put it back. Fast. Remember, this is the fund that protects the stability of the system you’ve put in place.

So, keep the fund growing steadily and if you use it, replenish the funds as quickly as possible.

How To Budget Without A Fixed Income, Part 4: Adjust Your Budget As Money Comes In

Now the fun part. You made a baseline budget that represents a bad to mediocre month. Hopefully, you’ll regularly be pulling in more income than you budgeted for. Great!

As your income comes in each month, increase your line items in the way that will best help you reach your goals. Maybe that’s more discretionary spending. Maybe that’s growing sinking funds more quickly. You’ll definitely want to make sure your investments reflect a consistent income percentage.

Regardless of what your financial goals are, because you budgeted on the low end and created a buffer between you and danger, you can use any extra income to accelerate reaching your personal financial objectives!

How To Budget Without A Fixed Income, Part 5: Make This A Recurring Monthly Process

And lastly, make budgeting a monthly event. You must do this, because for you, every month is going to look very different.

Start by reevaluating your baseline budget to make sure it still accurately reflects your income situation. Check in on your bad month fund to be sure it’s still large enough to get you through a dip. And then, of course, make adjustments as the money comes in.

Budgeting should be a monthly occurrence for everyone, regardless of their income situation. However, this becomes even more important for individuals with irregular incomes.

Conclusion

So, as you can see, not having a fixed income is not an excuse to not have a budget. In fact, if anything, it’s more of a reason to have a budget. And setting that budget in place is really not too difficult!

Again, the five steps you’ll want to take to set up your budget without a fixed income are:

Establish Your Baseline Budget
Get Ahead With A “Bad Month” Fund
Stay Ahead On Your “Bad Month” Fund
Adjust Your Budget As Money Comes In
Make This A Recurring Monthly Process

Ready to get started? Want some help getting it right?

And as always, regardless of your money goals, you can “Bank on a Budget” to get you from where you are to where you want to be!

So, as you can see, not having a fixed income is not an excuse to not have a budget. In fact, if anything, it’s more of a reason to have a budget.

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Alex

Hello, my name is Alex! I'm a public school teacher who has achieved some big financial goals just by getting control of my money using some simple strategies like using a monthly budget. Now I'd like to share what I've learned with you. Welcome to "Bank on a Budget!"