When we started paying off debt, my husband had an irregular income.
It really threw me off.
I wasn’t quite sure how to know exactly how much to allocate to different categories (including the snowball method for paying off debt) with a paycheck that changes every two weeks.
What if I allocate too much and his paycheck isn’t enough to cover it? Would I have to redo the budget for that pay period?
Or what if I didn’t allocate enough? Does that money go into a savings account? How does that extra money fit into my budget?
It can be intimidating to budget on an irregular income, especially when things are tight.
I remember feeling like I couldn’t create our budget until I knew exactly how much he was going to bring home.
The danger there is not giving every dollar a name before the paycheck comes, and it potentially getting out of hand before you have the chance to create your budget.
I’m going to break down exactly how we made our irregular income work for us. We not only fit everything together, but I actually preferred it to a fixed income. I’ll explain why in a bit.
Start with the minimum
Since you still have to create your budget ahead of time, where do you start with an irregular income?
Start with the minimum amount you will bring home.
For instance, if you are guaranteed 40 hours/week, but always get overtime, you have an irregular income. In this case, find out what your take-home paycheck will be with the minimum amount of hours you’ll work (in this case, 40 hours per week).
And it doesn’t have to be a minimum of 40 hours/week. Some are guaranteed much less than that.
My husband was never guaranteed a certain amount of hours per week. So in our circumstance, we actually went through a large batch of previous paychecks (at least 6 months’ worth).
We looked to see how much he made with each paycheck and when we knew lulls would be (we looked at a full year because of this).
From there, we found a comfortable minimum amount we could plug into our budget.
Budget using that minimum amount. Yes, it might look sparse in some sections of your budget. Or it may look great, but you aren’t able to apply as much to your debt.
This minimum amount may need some tweaking, just like your budgeting categories may have needed tweaking when you first started.
It puts you more in tune with what you’re making and helps you learn along the way.
Once that check comes…
Create a list, in order of importance, if things you would like to apply more money to that paycheck.
So, if you had to skimp on your restaurant fund, put less in gas savings, save less for house improvements, and apply less to debt, then your list may look like this:
- Apply more to debt
- Save 10% of extra funds toward house improvements
- Add $30 more in gas
- Add $20 more in restaurant fund
Once your paycheck comes, throw all of your extra money at your list, in order.
In our case, we tried our best to allocate the minimum paycheck and stick with those numbers. Why? So we could pay off our debt even faster!
I think that’s why it was so fun: the extra money we received that paycheck was just extra money we could throw at the principal of our debt and have it paid off.
Make adjustments along the way
Remember how I said you may have to make some tweaks? This is especially important when you have an irregular income.
You’ll really have to pay attention to what you’re bringing home. And you may have to revisit your minimum amount based on more recent paychecks.
All of this to say: you will very likely have to make corrections and adjustments even more so with an irregular income.
So stay on top of things! It takes just a few minutes to look to ensure your budget stays on track.
Budgeting on an irregular income is really not so bad. Especially once you get the hang of things. It can be pleasantly surprising when you’re able to apply even more to your budget than you thought!
Do you have irregular income? What has been the most challenging part for you? Have you perfected the family budget with an irregular income? Where do you like to throw your extra money?
I’d love to hear about it in the comments!