Like so many things in life, our income situations can change. Sometimes those changes make things easier. For example, going from not knowing when you’ll next receive your next paycheck to having one on a regular schedule means gaining some predictability that might make things easier to manage.
On the other hand, going from receiving a regular paycheck to a situation where your income is more irregular can be challenging. That irregularity may result in you not knowing how much your paycheck will be or when you might receive it.
If you’ve found yourself having to make that shift, whether because you’ve started freelancing recently, or because your hours or pay have been unpredictable lately, you’re not alone! While it’s good to know that there is some income coming in the door, it’s also important to acknowledge that shifting to an irregular income schedule can be stressful. You might now be wondering things like, “How can I make sure my bills are paid on time this month,” or even, “How can I make sure they’re paid on time going forward?” This is especially true if you were already budgeting with tight margins before the change.
The good news is there are some practical things you can do to make sure you can pay your bills on time and be prepared for a possible long-term shift to receiving irregular income. Take a page out of how freelancers, gig workers, and entrepreneurs manage their budgets and see how it’s done:
Adjust your budget to pay bills in the short term…
As mentioned earlier, a shifting income schedule or amount can make a tough situation even tougher. To make the shift a little smoother, start by creating a lean version of your budget so that you can better match your spending to your priorities.
1. Create a Lean Budget
This is a fundamental part of creating an emergency plan, and it also makes sense when your income becomes irregular. By creating a lean budget, you’ll have a more streamlined budget that you can use to prioritize your spending while you make the transition to a different pay schedule. Then, once you’ve made the shift and feel comfortable again with your budget, you can transition back to your regular budget.
Use your existing budget as a jumping off point to make your lean budget. Like most of us, you’ll probably have some Fun Envelopes that allow you to eat out or spend on board games. But when you shift to an irregular income, you can’t count on having enough to cover those kinds of spending. For now, consider reducing the spending for the discretionary parts of your budget.
On top of reducing your budget for things like eating out, you can also consider pausing your savings for things like vacation or your other money goals. Instead, you’ll divert that cash to more urgent spending throughout the transition, which we’ll talk about in the next step.
2. Prioritize Your Fill Based on What’s Due First
In the previous step, you created a lean budget by reducing what you plan to spend on nonessentials, like travel or hobbies. In this step, you’ll reallocate any existing money in those Fun categories to ones that you’ll use to pay for bills and other essentials. By prioritizing which Envelopes you fill, you’ll be able to stash extra cash in the ones that you know you’ll need to use next. That way, you’ll have money in your Rent Envelope when the bill comes due.
By creating a lean budget and moving some existing cash around, you’ll be able to make sure that your essentials are paid on time.
Create or increase your cushion in the long term…
When adapting to budgeting with an irregular income, the goal will be to build a one-month cushion so that you can budget off of your last month’s income. If you already have a cushion, you might consider increasing it slightly to accommodate for the variability in income. Or, if your income is really unpredictable, you’ll want an even bigger cushion, say two or three months worth. When you have a cushion, you’ll know exactly how much money you’ll have to work with when the new month hits, and you’ll have it ready to go so that you can fill your Envelopes when the new month starts. You build a cushion by saving a little bit of cash each paycheck or each month over the course of several months or years. The more you save each time, the faster you’ll create this cushion.
In Goodbudget, you can use your Unallocated Envelope to hold your growing cushion. Once its balance reaches about one month’s worth of your expenses, that’s when you have a cushion. When that happens, you’ll use that cushion to fill your Envelopes at the start of the new month, replenish the cushion with all the new income you bring in during that month, and repeat those steps when the next month starts.
With these things in mind, you can make the transition to receiving an irregular or variable paycheck with peace of mind, knowing you are still able to pay the bills you need to pay.