Budgeting On An Irregular Income

Published Dec 27, 2019, 8:00 AM

Budgeting is foundational to this frugal lifestyle, and can be a hard enough muscle to build with a predictable income, but how do we approach this task if our income is irregular? While there are a few more barriers to budgeting when we don't know exactly how much we are making, there are still ways to get the bills paid, and save!

Click here for full show notes!

Episode eight eight, Budgeting on an irregular income. Welcome to the Frugal Friends podcast, where you'll learn to save money, embrace simplicity rights, and live with your life. Here your host Jen and Jill. Welcome to the Frugal Friends podcast. My name is Jen, my name is Jill. I'm the one that's grunting. Yeah, and we are so excited to bring you this last episode of the year. This is the last one of two thousand nineteen. Y'all. Wow, what a good year. It's been an amazing year. I'll probably talk about it in the after after show. I how great of a year this has been. So for our last episode of last year, we did an episode on budgeting and it was super popular. It's called Minimalist budget. This was episode thirty six, and so I wanted to do another one this year. But budgeting on and a regular income. So if you are a freelancer or you work hourly and your income goes up and down every month, we want you to head into being really confident in how you should be budgeting and the lifestyle to lead to uh, to make that budget work. So near and dear to my heart, yes, of course, because I think we so we all we both have a regular budget, so this is something that we deal with on a week to week to months on the basis, yes, if we're being honest week, day to day, hour and hourling on. So let's get into our sponsors and then we'll get into budgeting. Also brought to you by not knowing, that feeling of being on edge and lacking control that everyone loves. Not knowing paves the way for all those anxious feelings, question marks, and catastrophic thinking, and is especially fun when you're not knowing is linked to your income and monthly earnings. You entrepreneurs and subcontractors do know what I'm talking about here, and this sponsor is for you not knowing getting comfortable with being uncomfortable. Yeah, it's like when people choose to not find out the gender of their baby and borne it's not anymore. Um, there is the technology, but you know, some people want extra surprise the day that their body is ripped apart. More power to you, But we're talking about our income today, which is almost almost as sad as not finding out the gender of your baby until its birthday. We're having some hate mail about that, but that's all right for sure. Having an a regular income is really difficult, and I have been experiencing that since March when I became a full time freelancer. So and then Travis has always had a slightly fluctuating income because he has a like a base hourly, but sometimes he'll get over time, sometimes he'll leave early and get less. It's just it depends on what the work is like. So we are always budgeting UM in a different amount every month. Yeah, and I've had the lovely situation of irregular and low income. You've heard me talk about this before, so you know I bring an extra set of empathy and compassion for those circumstances. But I'm here to give hope today, so let's talk about it. So our first article is from every dollar dot com and that is one of my favorite budgeting apps. So I thought it was perfect that that was the first Google result for how to budget on a regular income because it is a great app to use if your income changes from month to month. And so obviously the name of the article is how to budget on an irregular income, And we've got five steps from Dave Ramsey's team on how to do that, and the first one is to start with your lowest monthly estimate. If you have ever listened to the Dave Ramsey Show, then every single day somebody asks about budgeting on an irregular income. So this will be nothing new to you. But to look at your pay stubs from the last ninety days, six months year and I out what your lowest monthly income was. So if you are in a seasonal income like job, then look at what your downtime is those months and budget off of that and then create your budget based on that number. So instead of taking an average, which is what some people suggest, create a budget based on your lowest. That way, even in tough times, if your seasonal income is not what you expect it to be, then you're still safe. So the point is too to be safe, and we'll we'll talk about how you can live on a little bit more than your lowest monthly estimate, but you should be budgeting on your baseline. Yeah, and that includes prioritizing the numbers that go into that lowest monthly based income. And you've heard us talk about the four pillars or the four biggest aspects of our budgeting, which is food, shelter, clothing, transportation. I mean, certainly bills would fall into here too, But figure out the essentials and then build from there um and make sure that that those pieces fit into your lowest Yeah. And when we say clothing, we mostly mean clothing for like your kids if they're growing out of it, um, not necessarily for you. I think most people nowadays could go a full year without buying any clothing. Like that's how much clothing we have. UM. So I honestly don't include clothing in in there. I just I switched that out for for bills. Yeah, they include that in shelter, but I switched it out for bills because sometimes those aren't associated with shelter. Yeah, exactly. And then from there you can adjust number three A just over the course of the month. So once you've created the lowest monthly income and you've budgeted to that, keep an eye on it as you work your way through the month and identify am I making more and be able to adjust the budget accordingly. Do I have some added unexpected expenses that I'm able to allocate some of that extra money to that bill or to that line item. And so there is flexibility in this, but there's also a requirement for probably paying greater attention to your budget. If you have an irregular income, I would say that you are probably going to be interacting or should be interacting with your budget a whole lot more than the person on a regular income. Yeah, definitely weakly and be tracking your transactions daily, and that's hard to do. It's still hard for me to do, and I don't do it regularly, but I do recommend it, So take that as you will. Um. But if you are looking for a way to make it easier to track your transactions every day, I say, stack the habit onto another habit you already have. So my go to is brushing your teeth. When you are brushing your teeth with one hand, have your phone in the other hand, and you are tracking what you spent that day. It also helps you brush your teeth a little bit longer, so it's like a dual benefit. But yeah, so that's my favorite one to do. But yeah, you definitely need to be interacting with your budget more often than people on salary. My toothbrush gets more worn out than Eric's because I do try to multitask. So then sometimes I'll hold it in my mouth while I'm use both hands and then it pushes down the bristles. I always see that my toothbrush wears out so quickly, Like what am I doing? Like, Oh, I'm always doing multiple things and biting down on the bristles. Best to choose a multitask that only takes one hand, or budget in extra toothbrushes. You can do that Bioman bulk you and your gum and your toothbrushes. It's amazing. Number four is create a hill and valley fund. So this is where you can get more flexible with the average of your income. So there are hills and valleys in every business. Sometimes you bring in more than average, and that's great, but sometimes you're in a slow season and you need to pull from savings to make ends meet, and that's where the hill and valley fund comes in. You don't want to be pulling from your emergency fund during slow seasons. That is not what an emergency fund is for. So you could also refer to this as like a sinking fund if you wanted to. But you want to have a separate fund in a separate bank account that you can pull from in months where you have a little more grace to your you need a little bit more money. You're making less but you are confident that you can make more of it later. So it doesn't assure that you will, but if you're confident in that, then there's no shame in having that Hill and Valley fund and pulling from it in a slow season. Yeah. So to be clear, this is separate from the emergency fund. So for those of you who have your regular income, we are saying that you would have another account with this money in it, specifically to supplement when you have those slow seasons. It's a great idea. Yeah, and keep it in another high yield savings account. You can never have too many of those. And yeah, and there great Yeah, And I would encourage to label it something like this Hill and Valley or whatever you want to call it, but that it is separate from emergency fund. But it's also separate from savings, so that it's it's not connected to the guilt of I keep dipping into savings, but so that it's also not a replacement for savings either, if you do have to wipe it clean, and now you've wiped your savings clean. So all of these things need to be happening. Building an emergency fund, building the hill and valley, building the savings. Yeah, okay, number five, copy your planned amount over to the next month. This isn't too much different from what you would do if you were on a regular income. You can use your budget as a template month to month. That doesn't mean that you shouldn't be changing it or looking at what's to come in the next month, or planning for as minimal expenses as possible, but it is a lot of effort, I think, specifically for irregular income folks to figure out a budget, and so having done the legwork can help to carry it over into the next month and the next month. So once you have that list of monthly expenses your Hill and Valley fund, utilize what you have done already as a guide for how to carry out the following months. Yeah, and every Dollar does this really well. You can literally just click on a month and it will copy it to the next month. I think you need a budget might do this. I'm not completely sure, but people love winnap, so I assume it does something similar. And these budgeting softwares do not pay us. I just really like every dollar. We should get paid for it by them some day. I know, maybe one day they did invite us. They did invite us to their headquarters and give us food. So maybe that was it. Yes, Oh they're connected. Okay girl, Okay, I'm where I'm tracking here. We we're good. We'll get there one day, We'll get there. So that is what every Dollar or Dave Ramsey has to say about budgeting on an irregular income. And definitely check out the every dollar app because you can you all of these things in that app and it's free if you're manually tracking your transactions, which is the version I use, the free one. For our next article, we want to dive into the months where business is slower and you may not have enough money to make ends meet. So this one is from Lauren Groupman, and it's how to budget when you don't make enough money. These are the valleys when you have already spent your Hill and Valley fund in previous months and you did not replenish it the way you thought you would in other hill type months, and this is how you can get through those months if you need to. Yeah, and I do think that this is worth highlighting. I think this is the biggest part where people struggle with irregular income. It's no problem to have irregular income if some months I'm making a million, another months I'm making five hundred thousands. The issue is feeling as though I don't have enough money to pay my bills. That's the problem people have with irregular incomes, and I think what makes it so difficult. So I think we have to address this because otherwise, if you've got enough to pay your bills, yeah, you can figure it out. Definitely, there's things you have to do differently, But I think this is probably people's biggest sticking points, is when it feels as though, well, it's irregular and I don't know if I'm going to be able to make ends meet. So we really want to talk to you listeners who are in that situation and to say, at least for me, I've been there, so I can definitely commiserate with you. But I do like the tips in here, and I think we can even add some things to this as well, because there's so much to be said about it of yeah, cutting expenses, learning how to make more money, there's a whole lot that goes into that. Yeah, And especially I resonate like with people trying to pay off debt with a lower to moderately low income, is that you are making all of your bills, but you are finding it really hard to find extra money to put towards debt. These are also tips that you can take and use. So the first one is keep a positive mindset, and she says this is the hardest one but also the most important, because negativity can really attack you from every direction. You can be working through thoughts like I'll never get out of this mess, I'll never find a job, I'll lose my home, I'll never get out of debt, all of all of these things, and they become self fulfilling prophecies if you give into them and if you stay in this mindset. But I would also add, you don't have to be like super positive and upbeat during this season, Like you don't have to fake it. Like when I was paying off debt and we were struggling to find money, Like I was pissed, and I was okay with letting people know that I was not having a good time. I was really bummed, I was lonely, I was bored, and and so that was just I was honest with my feelings. And I think the big difference is to not have a victim mindset. I think keeping the positive mindset is Lauren's combatant to the victim mindset, and mine was just like, like, screw it. I'm the only one in charge of my finances and I'm not happy, But I'm also not a victim. And I want to pair this with number two, which is remember that this is only temporary. So this is a tool that can help with number one of staying positive or not playing the victim. And I love her quote. She says, the action, you know, the the actionable items that we will get into won't stick if you don't keep your head in the game. That it can seem like, okay, well, what we're just talking about fluffy stuff here of these theoretical ideas, but actually putting your feet to it is not going to work if you're not in the headspace to make it work. So I do think that again, this is an important foundational thing to lay out, is where am I going to choose to be in my thought life? Because that affects our behaviors. I won't get into too much therapy here, but thoughts affect our feelings, which affect our behaviors, and if we can capture it at the thought level, we can then shift our emotions and behaviors that flow out of those things. So these are important. It might seem like it's not actionable, but it actually is to what are the thoughts that I'm thinking? What is it that I'm telling myself? And I'm not saying, look at yourself in the mirror and repeat I am betifully and beautiful. Actually, research shows that doesn't actually do much because it's just flattery and it doesn't stick. What does stick is the actual truth. So if you are repeating to yourself, I am never going to get out of this, I suck at this and replacing it with I'm in a rut right now, but this is only temporary, and here's some things I can do to get out of this certain position that does work, not the frilly flattery stuff. Yes, good word number three is one that we are particularly passionate about, and it is cut cut. So yes, before you try and make more money, before you spend any effort anywhere else, work on cutting your expenses because you get the most bang for your quote unquote book when you were cutting expenses verse trying to make extra money in this time, in this time of high stress. So if you're an entrepreneur and you can easily just go into your business and do something to make it a little more money. That's different then if you're trying to start something initially to make more money. So the first step is always to cut so and it doesn't have to be forever. So maybe you are cutting Netflix or cable or data on your phone, cutting it temporarily until you can get back into it using like simple meal plans and simple recipes and just going going is as small as possible with your spending. I like to think about the a lot of our listeners like the tight Wad Gazette and has it's like the Bible on being like super like extreme frugal. That's definitely not us, but you may want to get that book from the Barry if this is something you're going through. I have had a super passion for this right now because I have been writing a course on how to pay off more debt and save more money in without getting a second job. A lot of our listeners and a lot of my readers over at Modern Frugality have been wanting to pay off more debt but don't have time to get a side hustle, or don't have the physical capabilities to do it. So I have written a course and it opens on Monday, and it's only open for a week. So I will talk more about that later, but I'm like eyes deep in this right now. This cut cut cut, It's exciting, and I would say to partner this with what we talked about in the first article, of utilizing the lowest monthly income that you've had to set your budget. I would partner it with cut cut cut, So it's not just about what's the littlest amount I made. It's also about what's the smallest amount I can live off of? And depending on where you're at financially, it might be more advantageous to approach it from a what's the lowest amount I can live off of first and budget from there, So you could approach it either way. I will say, in really tight financial times, that's the way I've done it, of what is the lowest amount I can live off of? Because I'm not actually sure how little I'm gonna bring in next month, it probably is going to be a low amount, So where can I slash as much as possible? Yeah, that's definitely ongoing. Yeah, Okay, number four love this one, and I think it is what you should be aimed at if you are constantly living paycheck to paycheck or or being unsure is get more money? Just just do it. I mean certainly sometimes it's a whole lot easier set than done. And certainly listen to other episodes of our podcast where we talk about ways to do this, um consider other employment avenues, consider side hustles. Depending on your level of emotional resource, just finding ways to increase your income is going to lighten the load immensely. And I will say that when when I talk about okay, I want to encourage you all. This is the this is the one that's helped me the most. It's not realistic to live in this place forever of irregular and low income. I would encourage you to do as much as possible. It still could be that you've got to have a long term approach for it. For me, it was get my master's degree so that I can have a higher earning potential. That took time. I wasn't able to snap my fingers and make more money, but having site set on how do I get out of this place, which again starts with mindset and believing that you can that there are things that could be implemented to put yourself in a different financial position. I'm not talking suddenly making six figures. I don't do that now, but I am doing a lot better than I was five years ago. That took effort, that took correct mindset um. But identifying ways to make more money is certainly there's there's no alternative. Yeah, and the order here is intentional because cutting cutting your expenses is an immediate way to get more money, to free up more of the money you already have is immediate, but it does take a little time to make more money. So that is an intentional order. And we love side hustles, we have several side hustle episodes, but yeah, so this isn't an intentional order. And the very last one is to prioritize your bills. So when there's not enough money to go around and you have to decide who gets paid and who doesn't, it's it's the bills. It's keeping the light on, like we were talking about in the last headline. It's the food, it's the utilities, it's the mortgage, it's the transportation. So those are the things that are going to allow you to get to work. So it's like clothing that may be required as a uniform or something. And it's the transportation that gets you to and from work, not on road trips on the weekend, but so the bare minimum that gets you making money. Get those bills prioritized. Yeah, uh, speaking of priorities, something that's my priority every week. It's the bill of the weed. That's right, it's time for the best minute of your entire week. Maybe a baby was born and his name is William. Maybe you paid off your mortgage, maybe your car died, and you're happy to not have to pay that bill anymore. That bill buffalo bills, Bill Clinton, this is the bill of the week. Hello, I'm I'm not married from Hungary and my bill of the week is a fifty year a bill I found at work. I work in hospitality and I often find clothes left behind. I usually wash and donate them if they don't fit me. I recently listened to your episode Poker Sales It and I remember the tip about checking buckets, and there it was a bill. I would probably have worshed with that pair of trousers. So thanks for the tip. Oh my gosh. Yeah, I always kicked myself for not checking pockets before I wash. Not usually for great things like finding money, like usually try have sleeves pens. Yes, it's always like nails and screws and pieces of chipped wood, and why are nuts that I find in it? Or for guitar picks find in Eric's pockets. I'd love to find a bill right and then at the habit at the thrift storeman or at work, whatever, I don't know anywhere that you find clothes that also contain money. That's great. Thank you so much, Anna Maria for that awesome, awesome bill of the week. Yeah, it's so grateful. If any of you want to share your bill of the week, whether it's money or a bill you've paid, or a bill you got out of paying, or just a person named Bill, or somehow a way that you can talk about Bill, visit us at Frugal Friends podcast dot com slash Bill leave us one well, probably will probably feature it on our show We will d and now for the Lightning. So on today's Lightning Round, because Jill and I have lived on variable incomes for so long, we wanted to give you our top tips for living when your income is variable and these will help you stick to the budget. And there are a little a reiteration of some of the things we talked about earlier, but they are important life mantras if you will give it to us. The first one is keep track of your time, So not just writing a time blocking schedule and pretending you stuck with it, but act truly looking at the ways you spend your time. So how long are you working on certain projects for work? How long are you at work? How long are you watching TV or on social media? Because you can find a lot of time to research ways to cut your expenses or to make more money, then assume that you have no time and don't do any of it. So keep track of the time you're spending. And you may be freelancing and spending way more time than you thought on certain projects and realize, hey, I can tighten this ship up and get more freelance projects done and make more money. So being aware of your time by tracking it first is going to help you make more and save more and maintain a monthly budget. You've heard us say this already, but I'm going to drive it home with some support of arguments. So this needs to be your little extra baby, much more so than people who have regular incomes. You have to know what you're making and remain within those boundaries because boundaries do provide freedom, but this also provides a level of control where are not knowing sponsor tries to kind of creep in here. This does provide a level of knowledge and authority over where your money goes and knowing what's happening with it. So this has to be your buddy and you need to be interacting with it on a regular basis, definitely. So the next one is to build a bigger emergency fund. So you hear a lot of places to build a three to six month emergency fund, and a lot of people are like, well, how do I know? Is it three? Is it six? Is four? Five? If your income as a regular then it's six. Yeah. So it's the people that have steady, dependable incomes with lots of job security they can afford to do three months. But as an entrepreneur, freelancer, hourly rate worker um whose job is maybe not as secure than it's six months. And that may suck for some people because you want to get towards investing or saving for a house faster. But you are the person with a variable income, you need a bigger emergency fund. You don't need it bigger than six months unless you are like really paranoid, um, But yeah, you definitely need six and safer retirement in a roth I R A. You might be like, what we're talking about, how difficult it is to live off this money? Why are we talking about saving for retirement? Um? All the more, if you live on an irregular income, particularly in a situation where you're not considered an employee somewhere, you're not being given these benefits. You have to do this for yourself. You don't have a four oh one K, you still have to be Saving for retirements is another area where you can gain some control over this life that can feel a little chaotic at times. So again, it doesn't have to be massive amounts of money, but start somewhere and with rough i RA s. Funds can be invested uh and then withdrawn tax and penalty free. Only the dividends are taxed and penalized when you do withdraw the money. So it's a great place to be able to invest and save some money while maybe not being an employee and getting the benefits of that kind of income situation. Yeah, even if you are an employee, somewhere, and you do have a four oh one k, Definitely, after you get the match, go to a roth and and save there, and then once you max out a rath go back to your four oh one K. That's the smartest way to do it because you can control where your roth ira a is. And again, whatever you put into a roth ira a can be withdrawn if you need it for some reason, tax and penalty free. It's just that growth. This is obviously before fifty nine and a half, only the growth would be taxed, and everything you put into a four oh one K would be taxed and penalized before fifty nine and a half. So definitely, if you foresee yourself, you have the potential to be an emergency where you need savings beyond your emergency fund, your hill and valley fund. A roth ira a is a safe place to have on the back burner. It's obviously a last resort um, but it's there. Yeah. So, and that's what we have on budgeting for a regular variable incomes. And of course give us all your tips. Uh we obviously did not cover it all here, so join us over own Frugal Friends podcast community, Facebook community group, My Goodness Friends community. Thank you, we're there. We don't know the title of it anymore. It's a tongue twister. But give us your tips over there, what you've learned, what's worked, Um, and let's encourage each other. Yes, and if you have any ideas that you want to hear in on anything on any frugal living concepts that you want to hear, you can visit us in the group and let us know. And you may see your idea in a episode in the new year. Yes. So yeah, and uh, we're also continuing the book club. We are still reading my book pay Off Your Debt for Good that just came out last month. Super partial. But this is probably the most excited I've been for any book club book. Yes, and we know it's not available in libraries, so if you want to get a free copy, leave us a review on iTunes, screenshot the review, send that screenshot at review to Frugal Friends Podcast at gmail dot com. We pick one winner for every five reviews that are emailed. Yes, and if you want an example of a helpful review, this one is from debt Free CC and she says highly motivating, giving us five stars. We didn't ask for that, but we appreciate it. CC. She says, I've just started my debt payoff journey and this podcast has been motivating and inspiring. I just finished episode eighty two, why you Can't Finish paying off your Debt. I took notes and I'll be implementing various tips mentioned Thank you frugal friends, and that that episode was all about what the what's in the book pay off your debt for good? So I highly recommend it again, completely partial and um for this week only. I just decided just right now to do this. So the course that I've just written on it's called five Weeks to five hundred Dollars, and it helps you find expenses to cut so that you can find five hundred extra dollars every week to put towards your debt. And it is essentially an accompaniment to the book. And I am going to give away one copy of the course to someone who reviews the podcast this week's and this weeknd emails their review and they'll still be entered for the drawing for the actual book, but just for this week only, I'm gonna draw a winner next Friday for somebody to win a copy of the course. So if you would like if you want to take the course and cut your expenses more in leave us a review this week. So generous Jen, All, I'm giving you all for free, is my opinion. I love that Jen's giving you books courses, always smokes and you know, and then give him away. I love it because I send We'll be giving you another episode next week. Yeah. Frugal Friends is produced, edited and mixed by Eric Syria. Oh so, speaking of making money, a friend, my good friend Jenna, she told me the story of her little girl and she was about three years old. Um, her dad went in to wake her up for the day. It was like a Saturday morning and was like, hey, sweetheart, what do you want to do today? And this little three year old girl popped up out of ben and was like, make that money. I was like, that's amazing. Where she heard this, That is amazing. I can only hope that Pi is that cute. And you know that Travis would be like, yeah, let's go, let's let's go flip some stuff, let's go buy and sella Oh my gosh, make that make that money. If all of us could wake up with that attitude, we'd, I mean, we'd be debt free, living, living life with the splendors of our our efforts. If only we had a dad waking us up to help us money. That's true in our thirties, forties, fifties, sixties, seventies, eighties, and nineties. I don't know whoever's listening to this podcast. We all need good dad's. That's it. Yeah, okay, well, let's go make that money.

Frugal Friends Podcast

Controlling your spending is hard to do. On every episode of Frugal Friends, we'll try to help you g 
Social links
Follow podcast
Recent clips
Browse 498 clip(s)