Knowing budgeting tips can help you manage your finances better. This becomes especially crucial if you are one of the 31.8% of urban Indian workers who are self-employed or work as contractors or freelancers. In such employment, your income is proportional and related to your work. As a result, determining or predicting your monthly income can be challenging.
Assume you work in the sales industry. Here, your monthly income depends on your commission, which can vary depending on various factors. Similarly, if you work in the service industry or a job with rotating and hourly schedules, your work duration can vary, making your income variable. One way to navigate this is to know how to make the budget. A budget will help you plan your resources and manage your money for better financial health.
Read on to learn some successful budgeting tips for a variable income.
If you are wondering how to do budgeting for variable income, a baseline budget is the place to start. A baseline budget refers to the bare minimum budget, which includes the total amount of necessary expenses. The total is also the minimum amount of money you need to make or earn each month.
This budget usually accounts for necessary utilities and bills such as rent, food, water, and transportation. It is crucial that you do not include non-essential expenditures, such as eating out, shopping, or entertainment, in your baseline budget.
You can use several online budgeting tools and templates to create your baseline budget based on your variable income. These help you categorise past expenses and determine how much you spend each month on necessities and essential items.
Prioritising your monthly expenses based on your variable income is the next step after creating a baseline budget. This is crucial as it can help you figure out what you need to pay first and what can be taken care of later, such as leisure-related expenses.
Under this budgeting strategy, you need to determine what bills you need to pay first, second, third, and so on. This has to be in the order of importance and overall value. To create a comprehensive plan, you can also rank them by their due dates.
Assigning priority can be game-changing because it ensures that you adequately and appropriately allocate your money to top-budget items when you get paid. It also ensures you can still pay for the essential things with your variable income, even if your paycheque does not cover every aspect of your budget.
So, assign 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.
Finally, having a variable income also implies that there will be months when you will earn more and planning out your expenses wisely during those months is crucial. Suppose you earn more than your average variable income in a certain month.
In that case, you first pay for the essentials and then set aside a percentage of the remaining money to create an emergency fund. This budgeting strategy ensures that you have something to fall back on when your variable income is dwindling or is less than average.
This also helps you prepare better for unprecedented events, especially if they require you to spend a substantial amount of money. 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 in knowing how to do budgeting with variable income. This will help ensure you make the most of your income every month and take the necessary steps to secure your financial well-being.
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Some examples of variable income include commissions, bonuses, or the income of an hourly worker with fluctuating work hours.
A variable income is when the compensation one gets is not fixed and fluctuates each month. In simple words, you may not earn the same amount every month.
Bonuses, commissions, hourly wages, grants earned from equity compensations, freelance income, and business distributions are some sources of variable income.