Budgeting on an Irregular Income

May is Small Business Month! According to a 2019 study by the US Small Business Administration, small businesses generate 44% of US economic activity. This shows that small businesses are vitally important to the well-being of our communities.

We appreciate the value of small businesses and want to do everything we can to support our members own and run them. This month we’ll focus on topics that will help your business succeed and grow.

Tips for Budgeting on an Irregular Income

If you own or run a small business, you likely earn an irregular income. Developing a personal budget while earning an irregular income is a unique challenge, but’s still important to do. Following a budget can help you eliminate debt-related stress, live within your financial means and save for those rainy days. Here are some pointers to help you create a reasonable budget while earning an irregular income.

Oh, and before we get started: these principles apply equally to building a budget for your actual business! Your business likely operates on irregular income as well.

Understand and Estimate Your Income

The first step is to get a good understanding of the economic seasons and how they relate to your income.

For example, roofing contractors often experience a significant boom in business during the warmer months of late spring, summer, and early autumn. But winter work may be limited to emergency patchwork when the weather permits. Just like roofing contractors, you’ll need to take the seasonality of your business into account when creating a budget. Ideally, you’ll save money when business is booming so you’ll have enough money to cover your expenses during the slow seasons.

It may be helpful to reference previous years and seasons to get and average or baseline. Then you can use your current knowledge of how your business is doing to estimate what you’ll earn moving forward.

Calculating Required Spending

Your next step is to calculate your necessary monthly expenses. Required spending is usually consistent and includes things like

• Home payments / rent
• Utilities (water, electric, gas, sewer, etc.)
• Insurance
• Food
• Medical costs
• Car payments and gas

Now you know the minimum amount of money you’ll need to keep the lights on. This is your first building block for a usable budget.

Calculate Discretionary Spending

You also need to understand your discretionary spending each month. Discretionary spending includes any expenses that are not absolutely essential. These expenses include:

• Dining out
• Coffee and / or adult beverages
• Entertainment
• Clothing
• Non-essential groceries
• Cosmetics
• Manicures
• Gym memberships
• Sports subscriptions

It’s important to note that not all discretionary items are created equal. Some items may be more important to you or impact your life more than others. It may be helpful to rank your discretionary spending from most to least important to help you understand where you are willing to cut back if necessary. And remember: planning ahead and making a budget will actually reduce the likelihood that you’ll need to cut back on the discretionary expenses that are important to you.

Put It All Together

Once you’ve estimated your income and calculated your spending, it’s time to put it all together. You can use a spreadsheet if you want, but it’s probably easier to use a budgeting tool or app. Members can access Horizon’s online and mobile suite of budgeting tools called Money Tracker for free.

In the months when you make more money than you’re spending, think about saving a portion of that money to cover months when you’ll need to spend more than you make. Then over the course of the year you can still come out on top.

If you’re consistently losing money you’ll have to adjust your spending, or increase your income! That’s when your ranked discretionary spending list comes in handy.

Lastly, don’t worry if your budget is a little off each month. It’s easier to think of your budget as a flexible plan. Some months you’ll come in under budget, and some months you’ll be over. The important thing is that you’re being thoughtful and intentional with your money. This will benefit you in the long run and is the best way to become financially stable and secure.

Are You Ready to Boost Your Business?

Horizon’s business loan experts are here to help you make your dreams happen! We love helping people grow their businesses and supporting local communities. If you’re ready to boost your business, give us a call at 208.258.2515 or click here to get started.

If you want to learn more about growing your small business, check out the resources in Horizon’s Financial Training Ground (scroll down to the Small Business Learning section). This content is free to members and non-members alike and is valuable for anybody looking to grow their small business.

Read more articles like this on HZCU’s Financial Knowledge Hub.