If you are one of the many people with an irregular income, it can be challenging to manage your finances. Fluctuating income can make it difficult to know how much money you’ll have each month, which can make it hard to budget effectively.
However, with a few simple steps, you can take control of your finances and make the most of your irregular income. In this blog post, we will discuss 12 things you can do to manage your money effectively when you have an irregular income.
We will cover topics such as opening savings accounts, creating a budget based on your lowest monthly income, and reducing discretionary spending to ensure you have enough money in your bank account to cover your expenses.
Downsides of having an irregular income
There are many downsides that come with having an income that is not regular. Let’s take a look at the top 5 disadvantages of having an irregular income.
1. Difficulty with budgeting
When you have an irregular income, it can be hard to budget accurately for your monthly expenses. Since your income isn’t consistent each month, it’s challenging to determine how much money you’ll have to allocate toward bills and essential expenses.
Your savings account might dry up and you might need to withdraw from your emergency fund to get that extra money. The point is, budgeting is hard with an irregular income and that’s why it’s important to learn how to do it properly.
2. Inconsistent financial security
When you rely on an irregular income, it’s difficult to maintain consistent financial security. The uncertainty around your monthly earnings can make it challenging to plan for big-ticket purchases or make long-term financial investments.
An irregular income can also make it hard to maintain traditional bank accounts or financial products since many of them require an average income or minimum balance. You may not have access to credit or other financial products, which can limit your options in an emergency.
To make matters worse – if your income varies from month to month, it can make it hard to plan for the future, like a vacation. Inconsistent financial security can lead to many potential problems, so it’s important to have a plan in place to manage these fluctuations.
3. Difficulty in obtaining credit
When you have an irregular income, it can be tough to obtain credit. Lenders and financial institutions need to see that you have a consistent income to feel comfortable lending you money. Unfortunately, with an irregular income, there’s no guarantee that you’ll have enough cash to spend money or pay back a loan.
Your irregular income might make it harder to qualify for loans when you need them, which can be stressful if you have essential monthly expenses or fixed expenses to cover. In some cases, you might be forced to lean on high-interest credit cards or other options that can hurt you financially over the long term.
4. Unpredictable expenses
One of the most significant disadvantages of having a variable income is dealing with unpredictable expenses. When your income fluctuates, it can be hard to anticipate what your expenses will be each month. For example, you might have a surge in business one month, followed by a period of lower income the next month.
It can be challenging to plan for unexpected expenses, like estimated taxes or sudden essential purchases. Having a safety net in place can help alleviate some of this stress, but it’s not always a viable solution.
5. Can’t focus on things that actually matter to you
Having an irregular income can be so stressful that it takes your focus away from the things that actually matter to you. You might spend your time worrying about how to pay credit card statements or other monthly expenses instead of pursuing your passions or long-term goals.
Your monthly average income might not be enough to cover your monthly expenses, leaving you feeling overwhelmed and drained. When this happens, it can be hard to take the time for yourself and focus on the things that make you happy.
How to prepare yourself financially when you have an irregular income?
Before we jump into the tips let’s find out what you need to do first.
1. Assess your average monthly income
Having an irregular income can be challenging, but there are steps you can take to prepare yourself financially. First, assess your average monthly income by reviewing your earnings over several months or years.
Being realistic about your income can help you budget and plan for your expenses more accurately. It can also help you identify any trends in your income that can inform your financial strategy.
2. Take a close look at your monthly expenses
Once you have a clear idea of your average monthly income, you can start to look at your expenses and create a budget. Track down all of your fixed costs like rent, car payments, and utilities.
Then calculate any variable costs such as groceries or entertainment expenses. This will help you get an accurate picture of how much money you need each month and give you more control over your finances.
3. Assess your debt payments
If you want to reduce financial stress, it’s important to assess your debt payments. Consider ways you can reduce or restructure payment plans so that you can pay off your debts faster.
You may be able to consolidate some of your debts into one loan with a lower interest rate, which can help make payments more manageable. You should also keep track of the interest rates associated with each of your debt payments so you know how much you’re paying in total.
4. Know how you want to live
Think about what you like and what makes you happy. When you have an irregular income, it can be hard to plan for the future or pursue your goals. Knowing how you want to live lets you stay focused on what’s important and makes it easier to make decisions about spending and saving money.
This means setting clear goals and boundaries so that you can stay on track. You may need to make some sacrifices, such as reducing unnecessary expenses or taking up a side hustle to earn extra money. This way you can make sure you’re able to maintain your desired lifestyle, even when your income fluctuates.
Top 12 things to do when you have an irregular income
So now that we know the basics, it’s time to jump into the tips. Here are 12 things you can do to prepare financially when you have an irregular income:
1. Understand the difference between needs and wants
If you have an irregular income, understanding the difference between needs and wants becomes even more important. It’s easy to fall into the trap of treating every expense as a need, but the reality is that not everything you want is necessary for your survival or well-being.
So, what exactly distinguishes a ‘need’ from a ‘want’? A need is something that is essential for your basic survival and well-being, such as food, shelter, clothing, and medical expenses.
These are things that you simply cannot do without, and they should always be your top priority when managing an irregular income. On the other hand, a want is something that you desire or would like to have but isn’t essential for your basic survival. Think of it as something that would be nice to have, but you could do without if you had to.
Here are some tips to help you differentiate between your needs and wants:
- Take a moment to evaluate each purchase before making it. Ask yourself, “Is this something I really need, or is it just something I want?”
- Plan your expenses in advance and make sure that your needs are always covered first. This means creating an emergency fund to cover your basic expenses in case of unexpected events or emergencies.
- Consider alternative ways of meeting your wants without spending money. For example, instead of buying a new outfit, you could try swapping clothes with friends or family or renting clothes for a special occasion.
By understanding the difference between your needs and wants, you’ll be able to make more informed decisions about how you spend your money and focus your resources on the things that are truly important for your survival and well-being.
2. Create an emergency fund
An emergency fund is a savings account that you set up specifically to cover unexpected expenses, such as medical bills, car repairs, or other emergencies. If you have an irregular income, it’s especially important to have an emergency fund because you won’t always know when your next paycheck will arrive.
Having this type of financial cushion can help you feel more secure and less stressed about your finances.
Here are some tips for creating an emergency fund:
1. Determine how much you need to save: Experts generally recommend saving three to six months’ worth of living expenses. This can be a daunting goal, so start by setting a smaller target. Even saving $500 or $1,000 can make a big difference in an emergency.
2. Set up an automatic transfer: To make saving easier, set up an automatic transfer from your checking account to your emergency fund every month. This ensures that you’re putting money aside regularly, even when you don’t have a regular income.
3. Keep your emergency fund separate: To avoid dipping into your emergency fund for non-emergency expenses, keep it in a separate account that is not easily accessible. You may also want to consider a high-yield savings account that earns interest.
Creating an emergency fund takes time and effort, but it’s a crucial step in managing an irregular income. Having a financial cushion can provide peace of mind and help you stay on track when unexpected expenses arise. So, start small, set a goal, and make saving a priority.
3. Create a monthly budget if you have an irregular income
Creating a budget with an irregular income may seem like a hard job but it’s definitely possible. A budget allows you to plan for your expenses in advance and ensures that you’re not overspending or running out of money when you need it most. Here are some tips to help you create a monthly budget:
1. Track your income and expenses: Start by tracking your income and expenses for two to three months. This will give you a clear understanding of where your money is going and help you identify areas where you can cut back.
2. Categorize your expenses: Once you have a good understanding of your income and expenses, categorize your expenses into fixed and variable categories. Fixed expenses are things like rent or mortgage payments, while variable expenses include things like groceries, entertainment, and personal care items.
3. Prioritize your spending: When you have an irregular income, prioritizing your spending is crucial. Start by covering your essential expenses, such as housing, utilities, and food. Then, allocate money for your other expenses based on their importance.
4. Plan ahead: One of the advantages of having a budget is that it allows you to plan ahead for irregular expenses, such as car repairs or medical bills. Set aside some money each month for these types of expenses so you’re not caught off guard when they arise.
Remember to review your budget regularly and make adjustments as necessary. Your income may fluctuate from month to month, and your expenses may change over time. By keeping track of your finances and being proactive about managing your money, you can take control of your financial future, even with an irregular income.
4. Don’t fall into FOMO
FOMO, or Fear Of Missing Out, can be a real problem when you have an irregular income. It’s easy to feel like you’re missing out on things when you don’t have a regular paycheck coming in, and this can lead to overspending and financial stress. Here are some tips to help you avoid falling into the FOMO trap:
1. Set realistic expectations: It’s important to be realistic about what you can afford. Just because your friends or colleagues are going out to eat or taking a fancy vacation, doesn’t mean you have to do the same. Don’t feel pressured to keep up with others if it’s not feasible for your financial situation.
2. Plan ahead: If there’s something you really want to do or buy, plan ahead for it. Put aside some money each month until you have enough to make the purchase or take the trip. This way, you can still enjoy the things you want without putting yourself in an uncomfortable financial situation.
3. Focus on experiences, not things: Instead of spending money on material possessions, focus on experiences that bring you joy. This could be something as simple as a picnic in the park, a hike in the woods, or a game night with friends. These experiences can be just as fulfilling as expensive purchases and won’t break the bank.
4. Be content with what you have: It’s easy to fall into the trap of always wanting more, but being content with what you already have can bring a lot of happiness and financial peace. Take the time to appreciate the things you already own and the experiences you’ve had instead of constantly chasing the next big thing.
Remember, it’s okay to say ‘no’ to certain events or purchases when they don’t align with your financial priorities. By focusing on what’s important to you and being mindful of your spending, you can avoid FOMO and live a fulfilling life on an irregular income.
5. Set short-term and long-term financial goals
When you have an irregular income, it’s easy to feel like you’re constantly playing catch up. But setting short-term and long-term financial goals can help give you direction and keep you focused on the bigger picture. Here are some tips to help you set and achieve your financial goals:
1. Start with a plan: The first step in setting financial goals is to create a plan. Identify your short-term goals (e.g. paying off debt, building an emergency fund) and your long-term goals (e.g. saving for retirement, buying a home). Write them down and create a timeline for achieving each goal.
2. Make your goals specific and measurable: Vague goals like “save more money” can be hard to achieve because they lack specificity. Instead, make your goals specific and measurable. For example, “save $500 per month” or “pay off $5,000 in credit card debt in six months.”
3. Prioritize your goals: When you have multiple financial goals, it’s important to prioritize them. Start with the most important goal and work your way down. This ensures that you’re focusing your time and resources on the things that matter most.
4. Break down your goals into actionable steps: For each goal, break it down into actionable steps. This will make your goals feel more achievable and less overwhelming. For example, if your goal is to save $10,000 for a down payment on a home, break it down into monthly savings targets.
5. Celebrate your progress: Celebrating small wins along the way can help keep you motivated and on track. When you reach a milestone, take a moment to acknowledge your progress and reward yourself in a meaningful way.
Setting short-term and long-term financial goals is an important step in managing an irregular income. By having a plan, prioritizing your goals, and breaking them down into actionable steps, you can take control of your financial future and work towards the life you want.
6. Diversify your income streams
When you have an irregular income, relying solely on one source of income can be risky. That’s why it’s a good idea to diversify your income streams. By diversifying, you’ll have multiple ways to earn money, reducing your reliance on one particular source.
So, what does diversifying look like? It can mean picking up freelance work on the side, launching a side hustle, or investing in stocks or other assets. The key is to find opportunities that align with your skills and interests, and that will bring in income consistently.
For example, if you’re a talented designer, you might consider taking on freelance design work. Or, if you have a passion for fashion, you could start a side business selling vintage clothing or designing your own pieces. The possibilities are endless!
By diversifying your income streams, you’ll not only increase your earning potential, but you’ll also gain valuable skills and experience along the way. Plus, having multiple sources of income can provide a safety net during lean times and make managing your finances a little easier.
7. Payoff your debts ASAP if you have irregular income
When you have an irregular income, managing your debts can be a challenge. But paying off your debts as soon as possible should be a top priority. By doing so, you’ll reduce your financial stress and pave the way for a more stable financial future.
Here are a few ways to pay off your debts fast:
1. Prioritize high-interest debt: If you have multiple debts, start by focusing on the one with the highest interest rate. This will help you save money on interest payments and make paying off the debt more manageable.
2. Create a budget: To pay off your debts, you’ll need to know exactly how much money you’re bringing in and where it’s going. Create a budget that covers your essentials, such as housing and food, and leaves some extra for paying off your debts.
3. Make extra payments: If you have some extra cash, consider using it to make extra payments on your debts. This can help you pay off the debts faster and save money on interest in the long run.
4. Consider debt consolidation: If you have multiple high-interest debts, debt consolidation may be a good option. This involves taking out a loan to pay off all your debts, then making one monthly payment on the loan with a lower interest rate.
5. Negotiate with lenders: If you’re struggling to make payments, reach out to your lenders to see if you can negotiate a payment plan or reduce the interest rate on your debts.
Remember, paying off your debts may require some sacrifices, such as cutting back on non-essentials or taking on extra work. But the sooner you can pay off your debts, the sooner you can enjoy the benefits of financial freedom.
8. Cut down unnecessary expenses and save as much as you can
Living within your means is crucial when your income fluctuates from month to month. You need to learn how to differentiate between “wants” and “needs”. It’s okay to indulge in occasional luxury items, but it’s important to be mindful of your spending and not overdo it.
When it comes to cutting expenses, you can start by tracking your spending and identifying areas where you could scale back. For instance, do you really need to buy that new outfit this month, or could you get by with what you have in your closet? Could you limit your gym membership to fewer days a week?
Once you identify areas to trim spending, you can set up a budget that reflects your irregular income. That way, you can manage your cash flow accordingly and ensure that you have enough money to pay your bills and meet your basic needs.
Additionally, by trimming expenses you can create a safety margin that can help you to tide over any unexpected financial emergencies that you might face. Most importantly, cultivating a savings habit is crucial for people with irregular incomes.
Whether it’s saving 5% or 10% of your monthly income, ensure that you put away a portion of your earnings each month into your savings account. This will create a cushion for the times when your income is lower than usual, and it will also help you to create long-term financial goals.
9. Take advantage of workplace benefits when you have an irregular income
Many employers provide benefits such as health insurance, retirement savings plans, flexible spending accounts, and even educational assistance. If your employer offers any of these benefits, it’s important to understand them and figure out how to make the most of them.
For example, if your employer offers a 401(k) plan or other types of retirement plans, you may be able to contribute a small amount each month. Even if your income isn’t steady, contributing to your retirement account can help you save money for the future. You can select a low contribution percentage so that it does not hurt your current budget.
Also, some workplaces offer flexible spending accounts (FSA) that can help you save on healthcare expenses. You can contribute a certain amount each year pre-tax, and use it for eligible expenses such as copays, deductibles, and prescriptions. If you have any medical expenses, having an FSA account can potentially save you money in taxes.
Similarly, if your place of work offers any educational assistance, this could be an excellent opportunity to further your education while saving on tuition costs.
You can check with your HR department if there are any in-house or outside courses that you could take to enhance your current skills or participate in vocational training that you can make use of to increase your earning potential.
10. Invest as soon as you start earning when you have an irregular income
Investing offers a way to create passive income and build a safety net for your future. One of the best ways to start investing with an irregular income is to invest in a mutual fund or an ETF, which are less risky and diversify your funds.
Contributing to a tax-sheltered retirement savings account, such as an IRA or 401(k) plan, is also an excellent way to save on taxes and grow your nest egg. It’s essential to seek the assistance of a financial advisor or conduct research to understand the risks of various investment options.
Even small contributions to your investments can add up to significant gains over time and help you achieve long-term financial stability and security.
11. Utilize your tax refund strategically
When dealing with an irregular income, using your tax refund wisely is crucial for managing your finances. You can allocate your refund towards paying off debts and bills, building your emergency fund, or investing in yourself.
By using your refund to maximize long-term financial stability, you can avoid unnecessary financial stress and pave the way for a more secure financial future. Remember that your tax refund is an opportunity to improve your financial health.
It’s vital to make strategic and thoughtful decisions that meet your present financial needs and help to create a more prosperous financial tomorrow.
12. Be flexible and make changes to your budget and lifestyle as needed
When you have an irregular income, it’s essential to be flexible and adaptable to make changes to your budget and lifestyle. Here are a few tips to help you stay on top of your finances:
- Evaluate your financial situation every month, and adjust your spending and budget accordingly.
- Prioritize essential expenses first, such as housing, utilities, and groceries, and adjust your discretionary spending based on the available income.
- Consider picking up different jobs or gigs to provide additional streams of income.
- Learn new skills to expand your earning potential and diversify your income sources.
- Treat every lower-income month as a challenge and focus on cutting back expenses while increasing savings.
- Communicate with your family and get everyone on board with budgeting and lifestyle changes.
- Find free or low-cost activities for entertainment, such as hiking or attending free community events.
- Seek help from a financial advisor or attend financial seminars to learn tips and tricks to manage your money better.
- Aim to set aside a portion of your income towards savings every month.
By being flexible, understanding your finances, and keeping yourself open to changes, you will successfully navigate the challenges of an irregular income. It takes time and effort, but with smart budgeting techniques and careful planning, you can create financial stability for yourself gradually.
Conclusion
Having an irregular income is not the end of the world! With careful budgeting and planning, you can manage your finances and create a secure financial future for yourself. In this blog, we have shared a few ways to manage your finances with an irregular income, such as cutting back on expenses, finding additional sources of income, investing strategically, utilizing your tax refund wisely, and being flexible. We hope you find this blog helpful and use it to improve your financial situation. Good luck!
