Budget for Irregular Income

Most people with irregular income think it's impossible to budget with a changing paycheck. The truth is, it is not impossible, it just takes better planning. The easiest and most functional way of budgeting for inconsistent paychecks is via the Two Checking Account method.  This method creates a separate account just for your fixed monthly expenses, and uses the other account for monthly variable expenses that are more controlled.

How To Approach an Irregular Income Budget:

1. Calculate your average paycheck from the last 3 months. If you are paid weekly you will average out the last 12 paychecks. The goal is to set a baseline for income.
1. EX:   Bob had 6 paychecks in the last three months that averaged $1,473.50

2. Calculate your monthly paycheck based on your paycheck frequency
1. EX: Bob gets paid twice a month (1st and 15th) his average month is $2,947
2. Add any additional monthly income you might have (interest, rental income, etc)

3. Make a list of all of your Monthly Bills. I call these your monthly obligations - expenses you have each month that hardly change. Examples Rent, Mortgage, Utilities, Cell phone, gym Memberships,  Credit Card Minimums, Loan Payments

Rent	$    670.00
Cell	$       65.00
Utilities	$    124.00
Cable/Internet	$       78.00
Student Loan	$    228.00
Car Loan	$    326.00
Insurance	$       87.00
Visa Card	$    127.00
Gym	$       32.00
Total:	$ 1,737.00

4. Divide Total Obligations by number of paychecks in the month
1. EX: $1,737 / 2 = $868.5
2. This value represents how much you will need to save from each paycheck to cover all of you Monthly Obligation expenses

5. Budget Remainder of Monthly Paycheck with Remaining Categories
1. $2,947 - $1,737 = $1,210.00

Savings	$    100.00
Groceries	$    265.00
Shopping	$    200.00
Entertainment	$    250.00
Restaurants	$    120.00
Personal Care	$    100.00
Home Supplies	$    100.00
Misc Expenses	$       75.00
Total	$ 1,210.00

6. Create Paycheck Rules

Paycheck rules are set dollar amounts that will be taken out of each paycheck to cover the monthly obligation expenses and saving goals.

1. Ex: Bob's Paycheck Rules
• $868.50 will be transferred to the Secondary checking account
• $50.00 will be transferred to the savings account

Things to Note

1. It is very important that you pay your monthly obligations from Checking Account #2, and use Checking Account #1 for other monthly items. The goal is to always know you are covered for your monthly expenses even if your paycheck dips below average.
2. When in doubt - Underestimate Income and Overestimate Expenses

3. If your income varies based on time of year, you should readjust your budget averages each couple of months. It is also advisable that you put more into checking #2 than the minimum as to create a buffer

4. In the event you have a much larger paycheck than average (Way to Go!) create a plan for the excess amounts. Set  percentages for the extra money based on saving, debt, or personal needs.
1. EX: Bob had a great sales period and his paycheck was $2,474.50 Bob's plan for the extra $1,000 is:
1. 40% to Savings  $400.00
2. 20% to Car Loan $200.00
3. 20% to Checking #2 - $200.00
4. 20% to Fun Trip - $200.00