Finance

4 March 2023

Whether you are an entrepreneur starting your business venture, or a freelancer who is still exploring their options through different projects, budgeting with a variable income is never easy. If you are one of the 31.8% of urban Indian workers who are self-employed or work as a contractor or freelancer, your overall income is directly proportional and related to the work you do, which can be a problem especially if there is a huge gap between your current and your next project. 

It can be difficult to determine or predict your monthly income if you work in the sales industry and your monthly income is dependent on your commission which can vary greatly, and depends on a variety of unpredictable factors. Similarly, if you work in the service industry, or a job with rotating and hourly schedules, your work duration and income can vary from week to week. Hence, it is crucial to know how to budget, especially when your income is variable, and successfully manage your money for better financial health. A budget will help you plan your financial resources in the most optimum way, and here are a few success tips to do budgeting with a variable income: 

1. Create a baseline budget for every month

A baseline budget refers to the bare minimum budget, and the total amount of expenses listed in this budget is the minimum amount of money you need to make or earn each month. A baseline budget usually accounts for necessary utilities and bills such as rent, food, water, and transportation. It does not include non-essential expenditures such as eating out, shopping, or entertainment, and while creating a baseline budget, it is important to exclude this leisure expenditure from your baseline expenditure. 

Remember, a baseline budget only includes what is necessary, and reflects the bare minimum amount of money you will need to get by. To create your baseline budget based on your variable income, you can use several budgeting tools and templates available online. These help you categorize past expenses and determine how much you are spending each month on necessities and essential items. 

2. Prioritize your monthly expenses based on your variable income

Prioritizing your monthly expenses based on your variable income is the next step after creating a baseline budget, and it is important as it can help you figure out what is important and essential, and what can be taken care of later, such as leisure-related expenses. This also means determining what bills need to be paid first, second, third, and so on, in order of importance and overall value, and you can rank them by value or their due dates to create a comprehensive plan. 

Assigning priority can be game-changing, especially because it ensures that you are adequately and appropriately allocating your money to top budget items when you get paid so that even if your paycheck does not cover every aspect of your budget, you are still able to pay for the important things with your variable income. Hence, assigning your monthly expenditures along the lines of what is necessary and crucial, such as your electricity bill and rent, and what you can let go of temporarily, such as eating out and that monthly Netflix subscription.

3. Plan better for the future months especially when you earn more

Finally, having a variable income also implies that there will be months where you will earn more and it is crucial to plan out your expenses wisely during those months. If you happen to earn more than your average variable income in a certain month, you first pay for the essentials and then set aside a percentage of the remaining money for a lucrative emergency fund or emergency account. This ensures that you have something to fall back on during the months where your variable income is dwindling or is lesser than average. This will also help you prepare better for unprecedented events especially if they require you to spend a huge amount of money. Clearly, it is crucial to add a small part of your variable income to your emergency account each month, before you reward yourself with leisure and non-essential services. 

It is important to remember that formulating a detailed and meticulous plan is the first step towards being successful with your finances and ensuring that you make the most out of your variable income. In case you do run out of financial resources or face an emergency, you can always utilize Fibe’s instant personal loan that is there to help you out financially with minimum documentation, low-interest rates, and quick approvals.

Download the personal loan app here, or simply log in to our website and be a part of the #OneSmallStep experience.