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How should the home budget be managed by commission sellers, freelancers and many other people who are never 100% sure of their own income? Today you will learn just that.
To begin with, I will tell you that these are methods fully proven in practice, and not theory. I have been running a household budget based on irregular income for years. Neither I nor my wife have ever been employed under an employment contract. Therefore, I am fully convinced that this system simply works.
How to determine irregular income?
In the case of differentiated earnings, you do not know what amount to enter into the budget. This is perfectly normal, after all, you are not a clairvoyant. However, there is a simple solution. For this you need a history of your earnings for the last year, and preferably several years.
Even if you haven't been on a budget yet, it doesn't hurt. All you have to do is review the history of the bank account to which you received withdrawals. Write down all the months and the corresponding amounts. Do not do it on a sheet of paper, use Excel. You're about to find out why.
By the way, you will check whether your salary remains constant, whether it is growing, and if so, at what rate. If last year you earned PLN 45,000 and two years ago PLN 42,000, then did such an increase beat inflation? Revenues increased year on year, but was the increase comparable to increases in previous years? This is a time for reflection, which is often lost in the gray mass of everyday asaps, tasks and keeppies. Now you can take a look at your job and decide if it's worth going for a raise or maybe look for a new one.
Average annual income
I offer you the simplest way that I myself have used so far: count all net income from the previous year and divide the result by 12 months. This will give you an idea of how much money you have each month. If your salary is similar every month and there are no major deviations, then this method is also for you. For safety, you can divide your annual income by a larger number, for example 15, so you will have a greater margin of safety in the event of a worse period.
In addition to determining the amount of your maximum expenses, you also have a cheat sheet that shows you how much you should earn per month. If you stick to the average, everything is fine, and every better month will be an additional income. However, do not allocate these funds for additional consumption. Please note that we set these levels for your safety. If you earn more and more from year to year, then also check whether the current increase in earnings agrees with the previous one.
This method assumes that your earnings are quite stable, which is fraught with a certain error, due to which it is not as safe as the second version presented below.
Minimum monthly income
The second and much safer way. Again go through the entire previous year and find the month in which you earned the least. From now on, this is your limit amount that you can spend on expenses. In the event that your income varies, for example, between PLN 3,500 and PLN 6,000, you assume that each time you earn only PLN 3,500.
You set aside any surplus to protect yourself against months of low earnings or no earnings, if you have the possibility. If you consistently earn more than the minimum, you will quickly build a financial safety cushion.
What happens when temporary expenses exceed earnings? Nothing wrong. Don't panic, that's the assumption. Observing this rule, you are protected not only from this, but also from lifestyle inflation, which you will read about in the next material.
How to manage a budget with irregular income
Once you have determined which of the above methods you are going to use, it is time to review the expenses. At first, take care of only the essentials, that is, rent, bills, food, health and hygiene, and commuting. Your minimum income must cover the minimum cost of living. There is no exception to this.
If you have debts, such as a mortgage, then it should easily be covered by your average income. In the case of a minimum income, it may not be so light, so set aside any surplus for this specific purpose, e.g. with the help of a special purpose fund, which I wrote about earlier.
Whatever you earn over this limit, use as you see fit for savings, entertainment, etc. If you don't have anything left, or worse, it's time to take a closer look at your expenses. Irregular earnings are characterized by periods of better and worse, and this is associated not only with an improvement in the standard of living, but also a willingness to lower it if necessary. Maybe it's time to limit going out to clubs, new gadgets or clothes, or maybe it's time to roll up your sleeves and look for a source of new income?
The biggest problem of irregular earnings
I don't want you to keep saving and worrying about tomorrow. That way, you'll end up as a frustrated scanner with depression. I want you to enjoy your life, because there's nothing wrong with rewarding yourself for discipline. Supposedly, the longer you wait, the better the reward tastes. At least that's what the principle of delayed gratification says.
I just want you to do it with your head and be safe. A sober assessment of the situation and a quick response can prevent a disaster. An overly hawkish attitude to finances and overestimating their earnings in better times has already brought many people to the ground and ordered to politely pat down. Believe me, this applies to everyone - an employee of the corporation, as well as its owner. This is how lifestyle inflation works - but you will read about it in the next material.
