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- Everyone thinks their financial situation is unique — especially people earning an income that fluctuates month to month.
- Life on a variable income is usually lived in one extreme or another: panic in low-income months, euphoria in high-income months.
- But that doesn’t mean they don’t need a budget, which is a tool that helps you to be consistent with your money when your income is anything but.
The following is an excerpt from “YOU NEED A BUDGET“:
People with a variable income often tell me their situation is just too unique for a cookie-cutter budget.
A budget, with all its long-term goals pining for dollars, seems way too rigid when your income trickles and flows at an erratic pace. A budget feels so set in stone, so contrary to reality, that freelancers and anyone whose income changes from month to month avoid budgeting altogether—or quit the moment cash flow picks up or dries out.
If you’ve gotten this far in the book, you know that a budget is meant to be flexible. But from a distance, it can seem like a stifling box when your cash flow is so irregular. But all of that is a huge misconception. In truth, if you’re living on a variable income, you need a budget more than anyone.
That’s not because you’re bad with money—it’s because there’s so much more room for error when your cash flow is not predictable. Without fail, a client’s payment will be late in the month a big bill is due. An infrequent expense will hit and wipe out your bank account on a low-cash-flow month. A project will be delayed. That trip you’d planned so meticulously will cost more than expected. Common money surprises hit so much harder when you don’t have that regular paycheck on which to fall back. These are the moments when your budget will save you.
The other, often hidden, risk when your income is variable is that it’s easier to trick yourself into feeling rich on the months when a big payment lands. Those are the times you exhale and think, “Things are great. What was I ever worried about?” It’s tempting to avoid important money decisions and blow your chance at stabilizing your cash flow on the high-income months, when you feel everything is going so well that you’ve earned yourself a new pair of boots.
This is all normal—life on a variable income is usually lived in one extreme or another: panic in low-income months, euphoria in high-income months. It’s a wild seesaw ride (which you’ve chosen because it happens to come with what you’re passionate about in your career) that rarely gives you time to look at your finances with clarity. That’s why a budget is so important. It’s a tool that helps you to be consistent with your money when your income is anything but.
The fact that a budget is monthly sometimes trips up people who get paid at different intervals. They feel it just doesn’t apply to them, but looking at your expenses month-to-month is actually a great framework for keeping your goals and obligations organized. It lets you plan for the common monthly expenses and pace yourself as you work toward bigger goals. Looking at your expenses by month will also give you a clear view of where you stand financially. You may feel rich when that five-figure payment lands, but plugging it into your monthly budget will show you the real picture.
Maybe you are rolling in it, and you don’t have to worry about money for the next six months. That’s great, especially if you’re factoring in infrequent big bills for the foreseeable future. Just make sure that “extra” $ 1,000 is truly extra before spending it on a cruise when your tuition bill is due in two months and your next check won’t arrive until well after that. You may not like the truth, but you’ll be better off.
From the book “YOU NEED A BUDGET: The Proven System for Breaking the Paycheck-to-Paycheck Cycle, Getting Out of Debt, and Living the Life You Want” by Jesse Mecham. Copyright © 2017 by Jesse Mecham. To be published on December 26, 2017 by HarperBusiness, an imprint of HarperCollins Publishers. Reprinted by permission.
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