With my schedule shifting to part time in the next couple of month I realized I’m going to need to redo my budgeting method.
Aaron has a base salary, but most of his income is commission based. Since he is in a new field I don’t have his commission dialed in like I’m used to.
This means we are going to need to make changes to the way we budget.
Irregular income budgeting can be a bit more challenging then regular budgeting (which is hard enough). I like knowing how much money I have to work with each month and get kind of stressed when my numbers are off.
To help alleviate this stress, this is how I manage my irregular income budget.
Know your Base Expenses for each month:
In order to budget accurately you have to know your base amount for each month. This base amount doesn’t include any extras. It is the amount you must have every month to pay the bills and eat.
Base bills typically include:
- Utilities (Phone, Electric, Internet, Trash)
- Insurance (Medical, Life, Vehicle, Home)
- Miscellaneous Monthly payment (Vehicle, Credit Cards, Personal Loans and any other monthly debt you are responsible for)
- Retirement Savings (if applicable)
- Any other bills that must be paid on a monthly basis
Obviously these bills will vary by household. The important thing is to know your baseline number.
This amount shouldn’t include any random extras like clothing, dinning out – you know the typical budget busters.
Your number one goal with an irregular budget is to make sure that you can cover your basic expenses each month with your income.
Once you know your basic bills it is time to start adding back in the extras you typically include in your regular budget.
Prioritize your secondary spending:
The trick with the extras is to priorities them based on current needs. For example your extra budget items would include expenses like the following:
- Kid Expenses
- School expenses
- Dinning out
- Extra savings
- Large purchases
- Home decorating
Once I have my extra list done I prioritize my spending.
I literally go down the list and rate the items based on my current need.
Right now, I’m not buying any clothing. People keep giving me maternity stuff and I’d rather save my money for some new clothing once the baby comes.
If school is starting next month then you will most likely need additional funds for school registration, clothing and all the other miscellaneous expenses that pop up with each school year.
Your situation will change month to month.
With an irregular budget it is critical that you do a full assessment of your estimated extra expenses at the beginning of each month.
For example I know that two of our cars need to be registered in April. Registration will be at the top of my secondary spending list when it is time to do the April budget.
Helpful hints to make irregular budgeting easier:
1.Put aside savings of one month of your basic budget for really bad months. This may not apply to everyone, but if you are 100% commission or at times have really, really bad months it makes a huge difference to have at least one month of your minimum costs set aside for emergencies.
I know that some people use their emergency fund to cushion blows like this, but is it really an emergency when you know it is going to happen 2-3 times a year?
2. Redo your budget every single month. I know this sounds like a bunch of extra work, but budgets rarely stay the same month over month. You’ll find that even your basic number can change since you’ve included gas and food in the mix.
Your extra amounts will definitely change and you need to make sure you’ve factored in random stuff like car registration and other random expenses that don’t hit every month.
3. Watch for small budget busters that will get you into trouble. Everyone has their pet items that they tend to spend more money on then they should. Know and recognize your weaknesses and avoid them.
For more on this subject check out “How to Identify and Avoid Personal Triggers that Lead to Over Spending”
4. Watch for big budget busters that will get you into trouble. My car started making a funny noise last week. Aaron doesn’t think it is major, but regardless of the amount it wasn’t a planned expense and has the potential to really mess up my budget. Those are the items I really hate. ***editorial note – The little noise ended up being my exhaust manifold and was a $800 repair – Uggg. Yet another reason for an emergency fund.
I try to always leave some wiggle room in my budget for the unexpected. Technically that is what an emergency fund is for, but my goal is to never touch my emergency fund.
Budgeting isn’t fun, irregular budgeting is even less fun. I’m not looking forward to going back to this method of budgeting.
However, I’ve noticed that by using the prioritized spending plan for the extra expenses I’ve become significantly better at managing my money and planning for future events.
Which brings me to my last major point.
Typically with commission payments you will end up with 2-3 really really good months each year. When those good months hit don’t just run out and spend everything. Go down you list, catch up on the extras you’ve held off on and then put the rest aside for the less profitable months.
Just because you have a windfall of cash doesn’t mean you need to spend it.
Irregular budget planning is a lot more work then regular budgeting. However with proper management and planning you will find it becomes easier and easier to manage.
Good luck and let me know if you have any other helpful suggestions.