How can you determine what you can spend on bills and expenses when your pay check varies from one payday to the next? That’s an issue a lot of people are having to deal with.
A few of the carriers, that I can think of offhand, that could fall into this category would be waitresses or waiters working for salary and tips, truckers that are paid by the mile and can never tell how many kilometres they’re going to drive, self-employed people whos monthly income differs from one pay checkto the next, and the list could go on.
Attempting to manage your finances with a steady source of income is difficult enough but when you never know what your salary will be seems almost impossible, but it’s not. It is, however, going to be a little trickier.
In my budget and bill organizer I talk about averaging your monthly bills like your phone and electric bill that differ from month to month. The same thing can be applied to predict your income.
The first step you need to take is to find records of your pay for as far back as you can. For the best results we recommend 6 months worth.
Take these paystubs and total the amounts you recieved for the entire period. Then divide that by the number of months you have records for. This will give you your average monthly income.
If you don’t have any records of your previous pay you may need to go to your employer to get the records needed. If your employer cannot provide you with this information you should start a log of how much you recieve in income every month and use this to develop your budget.
Once you have determined your average monthly income you will need to develop your budget just as if this was your regular pay.
Here’s where it gets tricky. You aren’t always going make the amount you have budgeted. The only way to handle this is to save when you make more than what you have budgeted.
Here’s an example:
You have determined that your monthly budget is $2000 per month;
In January you earn $2500. You will need to put away $500 of that money so that you can make up for any month that your income falls below $2000.
This sounds like a simple solution to a very hard problem but it may not be as easy as it sounds, unless you accustomed to saving money. It will take some discipline to make sure that money is there when you need it.
There could be a positive side to this method. If you are able to put the extra cash away and you have several months that you make more than your budget you could end up with a substantial savings account.
When setting up your budget make sure that you don’t underestimate your bills and expenses. This is one of the major reasons many budgets fail.
By averaging your pay it will eliminate the “Feast to Famine” approach to your spending. It only makes sense to spread your income out so that you can cover all of your bills and expenses every month.
Of course if you are having issues budgeting because of credit card debt and would like to speak to a professional about debt consolidation you should speak to a credit counsellor and see what options are available to you.