Planning for Non-Monthly Expenses on an Irregular Income
We can’t change the fact that you don’t know exactly when or how much you will get paid, but we can teach you to be in total control of your money, and stop stressing about it! This eight-part series will teach you exactly how to budget successfully and get ahead, variable income and all.
If you haven't read Parts 1-3, take a minute and get up-to-speed.
Ok, great. So you are resisting the urge to forecast. Actively not forecasting.
In order to do that, you need focus on dealing with what is known. Sounds good, except, isn't the whole point of the budget to help with the unknown? Well, yes. (Disclaimer: This next bit is going to feel counter-intuitive at first. Stay with us!)
You Know Far More Than You Think
All those unknowns in your financial life? A lot of them—maybe even most of them—aren't actually all that unknown after all.
It's tempting to think about the bills that happen like clockwork every month (rent, phone, cable, internet, utilities) as the only knowns in your budget. They might be your "regular," monthly expenses, but they are not all of your monthly expenses. Not even close.
You have to factor larger, less frequent expenses into the monthly equation. The big, lumpy, tricky expenses, that scare you because they loom large, but far away and vague enough to ignore. Except that is how you get into trouble. You've fooled yourself into thinking of things like auto repairs and Christmas and insurance premiums and vacation as one-offs and outside your “normal, monthly budget.” Maybe you honestly didn't consider it. Or maybe you did, but thinking of expenses like this, would mean the answer to "Can I afford this?" would be no a lot more often, and so you jumped ship.
But this is the key.
Embrace Your True Expenses
You know that your car will break down, or you will have to pay for your car registration or association dues or Amazon Prime membership, and at some point, you'll need a new computer and so on and so forth. You might not always know exactly when these things will happen or exactly how much they will cost, but you know they are coming. To not factor them into your monthly expenses is akin to burying your head in the sand.
If you put $25 away every month for your car registration, when it comes due, that $300 is just sitting there waiting to do its job. And $25/month is far less stressful than scrambling to come up with $300 or worse, carrying that balance on your credit card. By breaking it up into smaller, manageable pieces, and treating it like a monthly expense, you won't be caught off-guard. You will also have a more realistic picture of your finances.
This is good advice for anyone, but if you are living with a variable income, embracing your true expenses is truly a game changer. Otherwise, you know that the month when an "unknown" expense hits will coincide with a month your income suddenly plummets. Because, of course.
Expect The Unexpected
Truth be told, many of our true expenses are very cut and dry. They may not come due every month, but they are still very predictable. Your insurance premium is due every year, at the same time, and for likely, nearly the exact same amount as last year. Christmas comes on December 25th every single year, and you know exactly who you'll have to buy gifts for.
So why is it difficult? Because you wait too long to prepare, plan, and/or save. You’re in a lean month and it doesn't seem like the right time to start saving. Maybe, next month. Yeah, probably next month. Except there is always something. Or you have an amazing month, and you are overly confident about all the money that will surely be rolling in.
Both of these approaches will get you into trouble.
The Benefits Outweigh The Sacrifice
That $600 renter’s insurance bill due in eight months? Take $600, divide by eight and budget $75 every month until then. Think of it as a monthly bill just like Internet and Netflix. Non-negotiable, part of your monthly obligations. Use months when your income is up to set even more aside, knowing you may not have enough to save like clockwork.
Will you feel like you have less discretionary money on a month-to-month basis? Yes.
But when you are able to pay for a big bill or unexpected expense without any stress or guilt, it will be more glorious than you ever thought possible.
Living more conservatively, month to month, with an eye to the future, will take the pressure off of your income to be perfectly stable, giving you more flexibility and headspace to increase your income in the months to follow. Pretty soon, as you prepare and save for your true expenses, you’ll wonder why the unexpected was ever stressful–or even unexpected.
Start thinking through your true expenses, and how you should redefine and calculate your monthly expenses. Next week, we'll talk about what to do when, despite your best efforts, you are still blind-sided (because it happens. To all of us.)