Calculate your non-negotiable expenses
Before doing anything else, you’ll want to know exactly how much you need to spend, not just how much you can spend. Jot down all your necessary expenses. Make sure to include rent, insurance, student loans, car payments, groceries, and any other essential. For now, focus more on static expenses (those due in unchanged amounts at an unchanged time).
Once you’ve made a list, pull up your payment history and take a look at what you’ve spent on each item. If the amount remains the same from month to month, write down that figure. If the number varies — even a little bit — write down the highest number you’ve paid in the last six months. You’ll be in a much safer position if you expect to pay more than you may have to. It’s better to have that cash ready to go than it is to come up short when the bill rolls around.
In only a few minutes, you’ll have an at-a-glance view of all of the major stuff. If fixed-price payments ever increase (like a yearly rent hike, for instance) be sure to edit your list and make the change.
Set up automatic withdrawals
For many, it’s hard to remember to set aside your money when your paycheck hits. Don’t make this mistake! Your capital will trickle away day by day. Before you know it, you’ll be left with a stack of bills and no way to pay them.
Make a point to move money out of your checking account as soon as your paycheck arrives. Add up the total amount you’ll need each month from your non-negotiables and set that aside. If the bare minimum you’ll need to spend is $1,800, for instance, transfer $1,800 to a separate account before you spend a cent. Even if you have a lean month, you’ll have the peace of mind that you can handle the bigger stuff.
Though moving money yourself is a great option, it isn’t foolproof. The allure of new cash is hard to shake. You might put off transferring funds, fall victim to impulse buys, or forget to transfer money altogether. Luckily, there are plenty of great apps available that will do the heavy lifting for you.
Budgeting apps, like Qapital and Twine, have an automatic withdrawal option that’ll make your life a whole lot easier. Simply download the app, create a profile, add your bank information and set your withdrawal preferences. Once you’ve set up your account successfully, the app will deduct your specified amount the instant a new deposit hits. Where does your money go, exactly? How can you know that you’ll get it back? When you register for these apps, you’re given an encrypted escrow account automatically. The money can’t be accessed by the company but can be accessed by you as needed.
Unsure about apps? You can get your bank to help you out, too. “Almost every financial institution has ways to automate savings or investments on a monthly basis,” says Jonathan Hebert, Financial Advisor at Waddell & Reed. “Take advantage of these dummy proof automation systems when it comes to saving and investing.” Visit your bank’s website or give them a call to find out how you can set up automatic withdrawals.
Plan for emergencies
Building your savings isn’t easy with an irregular paycheck, but it’s a necessary evil nonetheless. Conventional advice suggests that 20% of your earnings should be relegated to savings each month. When your income goes through periods of “feast and famine,” however, 20% isn’t always the magic number. It might be no sweat one month only to be a major loss the next.
Instead of setting aside a fixed percentage, allow your savings contributions to fluctuate alongside your income. If you have a lean month, try to set aside 10-15%. In your average months, try to set aside 20%. Your best months are where you’ll really want to make up ground.
On months where your income is far beyond average, push yourself to save a bigger chunk. If you can, set aside 25%, 30% or even 35%. Use your discretion. You should aim to set aside more than you’d prefer, but not so much that you’re barely scraping by. Your future, poorer self will thank you for it.
Ultimately, the key to effective budgeting with an inconsistent income is establishing good patterns.
Hebert notes that “When inconsistent income levels are an issue, discipline is key especially when there are surplus months. In surplus months, excess money can’t be allocated differently than negative months.”
When you have a great month, your first instinct may be to live large and treat yourself. When you do this, though, lean months will feel that much leaner. You won’t be in the habit of living within consistent means and will struggle to reign in your spending. Resist the urge to spend your excess. Get in the habit of spending a similar amount each month, even if you know deep down you can spend so much more.
Inconsistent pay is a challenge, but it isn’t a death sentence. With diligence, foresight, and planning, your finances will slowly start to even out. You’ll have a healthy amount of funds at all times, no matter how much your paycheck is. Slowly but surely, you’ll break the cycle of panic and give yourself the cushion you need.