Guest post by Jenae at I Can Teach My Child.
As a family of four, we live on my husband’s income only. He is currently an Administrator in Long-Term Care, a job he absolutely loves. I consider his job a ministry to the elderly and he truly has a gift for encouraging this neglected population.
His income, however, is largely bonus-based and therefore is quite irregular depending on the center’s performance in meeting budget, accounts receivable, census, etc. My husband is a high-achiever and does great with this type of compensation, but it certainly makes budgeting quite tricky!
Here are just a few suggestions we have found helpful for budgeting on an irregular income:
1. Look to the past.
Look back to the last few years and make note of overall compensation received as well as any noticeable trends (for example, a large part of my husband’s bonuses pay out in March). Divide your average income by 12 to see what you can expect your monthly income to be.
2. Make a budget.
Once you have your average yearly income, make a budget based on that income and set your financial goals (i.e. paying off debt, mortgage, etc). If you are new to an irregular income, you’ll want to shave off as much excess spending as possible until you are comfortable with the new income situation.
3. Keep a cushion.
In addition to 3-6 months of an emergency fund in an accessible savings account, I would recommend having at least one extra month’s worth of expenses in your checking account. This will help tremendously during those lean months without having to dip into your emergency fund.
4. Watch closely.
Make sure you keep a close eye on all financial transactions to ensure you have enough money to pay your monthly bills (as well as to make sure you’re not overspending). Using cash is always the most reliable way to do this, but we also use Mint.com for our electronic transactions.
5. Discuss and Evaluate.
Every month, look over your budget and actual spending (with your spouse, if you are married). If you have received a large payout, decide what to do with that money (put it towards the mortgage, paying off debt, etc). If this month is especially lean, look for ways in which you can cut back. Monthly budget meetings are especially important for families with irregular income.
An irregular income can be especially challenging in regards to managing and budgeting money. But it doesn’t have to be stressful nor consuming. Keep an open line of communication with your family members and remember to always keep a cushion to carry you through.
Jenae is a Master-degree holding former first grade teacher turned stay-at-home Momma. She loves finding creative ways to save money, spending time with her family, and sharing fun activities on her website I Can Teach My Child.