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Creating an Irregular Income Budget

Filed under: Blogging

The past 2 weeks I’ve been teaching personal finance to some of the missionaries on our base. This particular topic is one that is sadly overlooked in many high school curriculums as well as college core curriculum. It’s usually something most people have to figure out as they go using the “trial by fire” method and most usually end up getting burned more times than not trying to figure it out. Which is probably why America has a NEGATIVE savings rate, is in debt up to their ears and think its ok to take out a loan to buy a new car when it loses 25% of its value the second you drive it off the lot (and 60-70% of its value in the average length of a car loan). But let me not get sidetracked.

Interestingly enough one of the most popular articles on this blog is one I wrote on “Creating a Zero-Based Budget.” However, in order to use a zero-based budget you must know approximately how much income you have coming in each month. This works for much of the working world, but for the smaller percentage who are self-employed or missionaries whose income fluctuates from month to month the zero-based budget does not work entirely.

I was previously in the self-employed category and have now been figuring out how to best manage money as a missionary for the past few years and so the following is my attempt (with the help of Dave Ramsey) to create a budget on an irregular income.

Monthly Cash Flow Plan
Your monthly task for the rest of your life is to create a budget for the upcoming month. One very important thing to remember in creating a budget is every month must stand on its own. Before that month happens we must write out on paper what is coming up and plan for it. Every year Christmas is in December and if you have kids school usually starts the same times every year. Next month will be different than the previous month, so our budget isn’t the “perfect month” or the “average of all months in quicken.” We must write out a Monthly Cash Flow Plan for the next month BEFORE it happens.

A monthly cash flow plan is the first half of the equation. It lists out all of our expenses for the next month and lays out exactly how much money you will need to bring home to survive and prosper.

Irregular Income Budget
On this form, simply look at the individual items from your “Monthly Cash Flow Plan” sheet and prioritize them by importance. Ask yourself, “If I only have enough money to pay one thing, what would that be?” Put that at the top of your list. Then, ask yourself, “If I only have enough money to pay one more thing, what would that be?” That’s number two. Keep doing this all the way down the list.

With your list in place, you’re ready to get paid. If you get a $1,500 paycheck, you will spend that $1,500 right down the list until it is gone, recording the cumulative amount spent in the “Cumulative Amount” column. At that point, you’re finished spending, no matter what remains unpaid on the list. That’s why the most important things are at the top of the list, right?

Be prepared to stand your ground. Things usually have a way of seeming important when they are only urgent. For example, a once-in-a-lifetime opportunity to see your favorite band perform live may seem important, but in reality, it is only urgent, meaning that it is time-sensitive. Urgency alone should not move an item to the top of the list!

Below are some downloads to get you started.

Downloads:

• Monthly Cash Flow Plan (PDF)
• Irregular Income Budget (PDF)
• Irregular Income Budget (Excel)

Tags: Irregular Income Budget, Money, Personal Finances