Budgeting is about a lot more than just figuring out what you’re going to spend your money on each month. You have to factor in every financial cost and source of income to ensure that you’re fiscally sound while hopefully building a savings and a retirement fund at the same time. For people working in freelance or the self-employed, budgeting on a fluctuating income can be incredibly tricky.
Whether you have a steady income or not, you can absolutely create and stick to a budget that works for you. You can ensure that all of your expenses are paid and that you’re saving for the future as long as you keep in mind several of these helpful techniques to properly prepare a budget:
Figure Out Your Basic Expenses
What are the bare minimum expenses that you have to pay every month? These include anything that’s absolutely essential, such as rent, utility bills, groceries, or anything else that you must regularly spend money on. Once you know the bare minimum of what you need to get by, you’ll be able to create a baseline for your budget that you can tweak as need be.
Feel free to include the amount you wish to put in savings and/or investments in this bare bones budget in order to ensure that you’re consistently putting money aside for the future. If you make this a non-wavering payment each month you’re a lot more likely to stick to a savings plan than if you just save whatever you don’t spend.
Add Up Discretionary Expenses
After necessities come luxuries. Discretionary expenses are any expenses that are not absolutely vital, such as money spent on entertainment, going out to eat, or any hobbies you might have. If you find you’re regularly unable to meet all of your expenses, this is the place where you’ll have to make cuts in order to make your budget work.
When looking for places to make cuts, take your bank statements from the last month or two and see how much you spent on discretionary expenses. You may find that you’re spending more than you intended on things like your cable bill; perhaps you can get rid of one or two of them altogether. Little cuts help most when they’re taken from monthly expenses; after all, a year’s worth of cable really adds up.
Know Your Net Pay
Don’t make the mistake of budgeting based on the amount of income you earn before taxes. Freelance workers especially have to be careful when creating a budget to account for the correct amount of taxes that will be taken out every time they get paid. If you’re earning money from freelance work, set aside money every month for when you file your taxes at the end of the year. If you don’t know how much you’ll end up owing, overestimate it. It’s always better to save too much than too little.
Be sure to also factor in anything that might impact your income such as time taken off work. If you’re paid hourly and don’t have paid time off, you’ll need to account for the loss of income for every day off that you request.
Create A Savings And Build It Slowly
Savings accounts serve a very specific purpose in storing roughly three to six months of expenses in case of emergency. Any money beyond that should be invested or put into a retirement fund in order to let your money grow. However, a savings account is necessary in order to provide you with immediate access to funds should things go south.
Having an emergency fund can be a huge benefit if you have a fluctuating income, as it can help cover on the months when your income is less than expected. You can start small and build slowly as long as you make sure to find a savings account with no minimum balance. You should be able to find plenty of online savings accounts with high APR’s and no monthly fees.
Pay Bills Twice A Month
Pay whatever you can on a consistent basis to ensure you’re properly tracking and monitoring your expenses. Paying off your credit card bill, your rent, and your utilities on three separate dates makes it difficult to know exactly how much money is in your checking account at any one time. If you make it a habit to split the payment of all of your bills into one of two days every month, you’ll be able to track your spending much more easily than if you’re constantly making small payments.
If you’re consistent about when you make payments it also becomes easier to know how much is left over at the end of the month. This additional income can be used to build your savings account or can be allocated for investments. If you’re on track in both of those categories, you can even decide to spend it on something to treat yourself. Knowing that you have the extra money left over makes such indulgences smart and planned out rather than impulsive and irrational.
Have A Long Term Goal
The point of a budget is to track and monitor your spending in an attempt to spend less and properly allocate funds. The idea is to spend less than you earn so that you can build your savings over time, but knowing what you’re building them for can be a great motivator. Maybe you want to create a strong and stable retirement savings, or perhaps you’re saving up to put a down payment on a house. Having a long-term goal will make your budget more effective and help you stick to it.
Sticking to a budget means making tough decisions about where to make cuts inspending. If you can keep coming back to the reason why you made a budget in the first place, then you can use that image and that motivation to steel yourself in order to cut what’s necessary.