If you work at a regular job, chances are you make the same income each month. That level of predictability makes it easy to allocate each paycheck across various expenses. However, some people have volatile incomes that are based on seasonal changes, industrial trends, and other factors that are outside of their control.
It's a lot harder to budget if you make $8,000 in one month and proceed to earn $3,000 in the following month. A volatile income can be rewarding since some side hustles and freelance opportunities have greater earning potential. However, you still have to manage your expenses despite a volatile income. This conversation came up on Reddit, and several people with volatile incomes came forward with their advice.
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Use Your Average Monthly Earnings
One of the top comments came from a Redditor who suggested using your average monthly earnings when creating a budget. People with volatile incomes will have some lower-earning months, which will make it more difficult to make ends meet. However, if you save extra money during your best months, you can establish a solid emergency fund.
An emergency fund offers a financial cushion during your slower months. You can put your money into a high-yield savings account that generates close to 4.00% APY while letting you access your funds whenever you need them.
Many financial experts recommend having six months of living expenses stored in your emergency savings account. You may have to pull some money from this account during slower months, but actively building this fund during better months will prepare you for any slowdowns.
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Construct Your Budget Around Your Worst Month
Some Redditors suggested determining how much you earn during your worst month and building your budget around that figure. This decision will require that you live well below your means, especially if your income has dramatic monthly swings.
However, if your living expenses reflect your worst month, you will have plenty of excess during your best months. It may be more realistic to use your second-worst or third-worst month when calculating your budget, in case you have one really bad month.
You don't have to use your worst month as a budgeting gauge forever. The Redditor who suggested this approach said that you can save the extra money at the end of each month. If you invest that money, your assets will grow over time and give you more options. Enduring short-term sacrifices with a firm budget can result in attractive long-term gains and a better retirement.
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Look For Growth Opportunities
A volatile income makes it less predictable to plan your monthly expenses, but you don't have to settle with your current earnings. More volatility can also pave the way for more opportunities. Service providers can continue to prospect and seek new income streams that keep them busy.
The best way to create a budget that you can maintain is by regularly looking for ways to boost your income. It's good to be defensive by tracking your expenses and setting limits on how much you can spend. However, if you only play defense, you will miss out on income growth.
If you can gradually increase your income while maintaining your current lifestyle, budgeting will get a lot easier. You will give yourself a bigger cushion as your income grows and your expenses stay the same. Always look for new opportunities.
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