What is an inconsistent or irregular income?
An inconsistent or irregular income is an income that changes drastically from month to month. This type of income can be challenging to live with, regardless of the reason for the fluctuations. This income can create problems when budgeting for and planning for your future financial needs.
Who has inconsistent or irregular income?
Here are a few examples of situations in which a person might have an inconsistent or irregular income:
- Seasonal jobs or businesses that have more clients in a specific period of the year, like, for example, photographers. They will earn more in the wedding season, which extends from late spring and continues through early fall, with weddings peaking in June and September. Farmers or construction workers may also have inconsistent income.
- Self-employed people or freelancers often have irregular income, as they are not paid a regular salary like employees are. In some cases, self-employed people may be able to control their income by taking on more or fewer projects, but in others, they may be at the mercy of the market.
- Commission-based income falls in the irregular income category. Your earnings will fluctuate based on how much business you’re able to bring in. If you have a slow month, your income will be lower, and if you have a busy month, your income will be higher.
- Trading stocks can become a full-time career opportunity. And recently more and more people are trading from home. The stock market is inherently volatile, so the value of stocks can go up and down relatively quickly. This means that someone who is trading stocks may see their income fluctuate depending on the performance of the market.
- People who work in the gig economy. The term “gig” is a slang word for a job that lasts a specified period of time. Traditionally, the term was used by musicians to define a performance engagement. The gig economy can include a wide range of workers, from musicians and contract workers to gig economy businesses like Uber and Airbnb. In many cases, gig economy workers are able to command high rates for their services due to the specialized nature of their work, but the downside is that their income can be irregular.
Why is it more difficult to budget on an inconsistent or irregular income?
There are a few reasons why budgeting on an irregular income can be more difficult. First, it can be hard to predict how much money you’ll make in a given month, making it difficult to know how much to set aside for bills and other expenses. Second, even if you are able to save up enough money to cover your expenses, you may still end up short if your income fluctuates and you have a month where you make less than usual.
How to budget on an inconsistent/irregular Income?
Budgeting on an inconsistent income can be difficult, but there are a few things you can do to make it easier. Here are 4 steps you can take to be able to budget well on an inconsistent income.
Step 1 – Build up an emergency fund
Having an emergency fund is key in protecting yourself against volatility in your income. Every time you receive a paycheck, some of it is inevitably eaten up by expenses, so you must build up an emergency fund in order to safeguard yourself against such fluctuations. Building up an emergency fund is crucial, and there is no excuse not to do so. Your income may be inconsistent, but that doesn’t necessarily mean it will always be low. When your income is high, you must save money for the times when it’s low. Working against your natural urges and stopping unnecessary expenses when you receive a paycheck is critical.
Step 2 – Get a better understanding of your spending patterns
Spending patterns are the ways in which people spend their money. This can include things like how often they purchase items, what kinds of items they purchase, and how much money they spend on average in any spending category. There are a few key reasons why it can be helpful to understand your spending patterns. First, it can help you identify areas where you may be able to cut back on expenses. Second, understanding your spending patterns can also help you make more informed financial decisions. For example, if you know that you tend to spend a lot on eating out, you may be more careful about how often you do so. To understand the spending patterns, you have to compare your actual spending with what you think is normal. And just to be sure, you can compare it as well with what other people consider normal.
Here are some examples of common activities on which people spend more money than what they anticipated:
- Many people find that they spend more on groceries than they anticipated. This is often because people do not realize how much food they actually need to purchase in order to maintain a healthy diet.
- People often underestimate the cost of transportation. This can be because they do not factor in the cost of gas or because they do not use public transportation as often as they thought they would.
- Many people find that they spend more on entertainment than they originally budgeted for.
- Many people overspend on their credit cards, which can lead to debt.
- Other common expenses that people tend to overspend on include travel, dining out, and shopping. People often spend more on clothes than they thought they would. This is because people often see something they like and buy it on the spot, without thinking about how much it will cost.
- Childcare can be one of the biggest expenses for families. According to a report from the U.S. Department of Agriculture, the average family spends over $10,000 per year on childcare.
- Another big contender for overspending is health care. People are often surprised by the high cost of medical care, whether it is for an emergency room visit or a simple doctor’s appointment.
All of these costs can add up quickly, and people often find themselves spending more than they had anticipated. I tried to add a comprehensive list so that you can check your budget and see if you spend more than you anticipated in any of the categories mentioned above. When you find that your spending is much higher than what it should be, you can start working towards bringing it down to a level where it’s manageable. The purpose of this process is to make sure you spend as little as possible on a day-to-day basis and free some money you can direct to the emergency fund.
Step 3 – Supplement your income with other sources if possible
Starting a side hustle is a great way to generate extra income without having to commit to a full-time job. There are a number of ways to get started, such as freelancing, becoming a consultant, or even starting a blog. If you have a skill or passion that you can monetize, starting a side hustle can be a great way to earn some extra money. The trick here is to choose something whenever you want, even if the payout is lower. For example, you can build your own website and try to earn money from advertisements placed on it. You can learn search engine optimization (SEO) and apply it to your website. You can choose a niche or topic that you are passionate about and start a YouTube channel. If you are passionate about communication and interactions with other people, you can grow some social media accounts on topics you like. All of these are side hustles that require a lot of work and dedication, but the good thing about them is the flexible schedule you can adopt. All of the examples above have flexible working hours and can provide a degree of flexibility that may be beneficial for those who have jobs with irregular schedules or incomes.
You should know that there are some typical jobs where employers allow flexible work hours. Flexible work hours are a type of work arrangement in which employees are allowed to determine their own start and end times within certain limits set by their employer. Some of these jobs may be based in an office, while others may be based in a more flexible environment, such as working from home. Here are some examples of jobs that offer flexible work hours:
- Accountant
- Bookkeeper
- Commercial banker
- Controller
- Financial analyst
- Investment banker
- Loan Officer
- Management consultant
- Operations research analyst
- Personal financial advisor
- Securities analyst
- Tax examiner
- Tax preparer
To learn more about specific jobs that offer flexible work hours, it is best to consult with a career counselor or search online for job postings that list flexible work hours as a requirement or preference.
Conclusion:
Budgeting on an inconsistent or irregular income is like trying to budget on a tightrope without knowing how long the rope is or when it will snap. But if you are able to resist the urge to spend on things that you really don’t need, you should be able to make it work. This is actually the point of budgeting, and it works for irregular income as well. Whether your income is up or down, it is important to keep track of how much money you are making and how much money you need for the basic necessities of life. Start the budgeting process right away and it will help you determine if you are able to spend without going into debt or taking on unnecessary risks.