I was recently asked how to create a budget when your income is irregular(not the same from month to month).  So I decided to post the answer here, just in case, you had the same question.

The first thing you should do is review your paycheck stubs and/or bank statements for the last 12 months.  What’s the lowest amount of (monthly) income you received in the past 12 months?  This is the number you should use as your baseline for your budget each month.

Now that you know your baseline number, list all of your expenses and the estimated amount you pay monthly in the following order:

• Expenses to live (food, shelter, utilities etc.)

• Savings (paycheck buffer, retirement, emergency fund, etc.)

• Lifestyle expenses (all the things you enjoy that are not required to live day to day)

This is the order you will pay your bills each month.

Once you get paid, go down the list and pay off of your bills, when the money runs out, that’s it.  

If you are blessed to have money left over after paying all of your bills, you can allocate more money to your Paycheck Buffer Account and Emergency Fund (if needed), put more towards debt, invest, etc.

Paycheck Buffer Account

The Paycheck Buffer Account is used as a "buffer" in your checking account when your income is lower than planned.  This is different from your Emergency Fund.

 Your Emergency Fund is for unexpected expenses, you know your income is irregular so plan for the irregularities by saving some of your income in the "good" months so you will not struggle during the "slow" months.

 You can start small like 15%-20% of your monthly expenses and then increase it to the point where you have at least have a full month of expenses in the account.

So that's how I would budget with an irregular income.

 If you have a question you would like for me to answer (anonymously), click here to ask.