Continuing with the budgeting series, let’s talk about a few factors that can throw a wrench into the best laid budgeting plans.
If your income is variable throughout the year because you’re a contractor or a small business owner, it may be difficult to manage money.
But, for that reason, it is even MORE essential to be intentional and keep a good budget. When you have a budget, you’ll know exactly what expenses you have and which expenses are essential.
Here are a few tips to do a budget with an irregular income.
When planning spending for the month, shoot to budget a lower income than expected.
Then prioritize funding your essentials first (like mortgage, utilities, groceries, etc.)
On good months, set extra money aside in a different account to pull in to months where income is less.
A line item or zero-based budget might be a good choice for the extra detail necessary to budget on an irregular income. A pay yourself first budget may put someone with an irregular income at risk of over-drafting.
Ok, this might be obvious to some, but it wasn’t to me.
A month always has 4 weeks, right? Wrong.
There are 52 weeks in 12 months which comes out to 4 ⅓ weeks per month. MOST months have 4 weeks, but SOME months have 5 weeks.
Each year, there are at least 4 long months that have 5 weeks. In years following a leap year (like 2021, following 2020), there are 5 long months. In 2021, they are January, April, July, October, and December. The good news is they are predictable and google-able.
This means if you’re an employee, you may get an extra paycheck in the long months. Since most bills are monthly, you may have extra money in your pocket these months.
If you’re an employer, you’ll have more payroll costs these months.
As a side note, these months really came to my notice because the leap year put me in a bind this year. My pay cycle was so that there was an extra paycheck in 2020 that I hadn’t accounted for. That threw off my withholding calculation and I ended up contributing a little over the federal limit to my employer-sponsored retirement plan… ugh.
Good problem to have, of course, but I’ll have to work with my accountant to correct that on the next 2 years’ tax returns.
By the way, most employers will stop contributions when the federal limit is reached (so does mine), but I changed jobs in 2020 so they weren’t accounting for my contributions to my previous 401k.
Anyway, suffice it to say, it’s worth being cognizant of this phenomenon.
Finally, and most importantly, sometimes there is financial disharmony in the household. Sometimes one partner is very financially responsible while the other is spending thoughtlessly.
Getting a spouse on board is often difficult. It is important to start with a why… their why. Plan a money dream date to visualize a dream that you can work towards. Then, schedule a recurring budget date where you and your spouse can get on the same page and make progress together, as a team.
That’s it for this week.
Stay frugal, y’all!
Standard Disclaimer: Not meant as individualized financial or medical advice.