When you can’t predetermine your income for the year, you’ll need to make a budget that does more than guess at your income and expenses and records them as they happen. Using a flexible budget based on your cash flow needs and including formulas that apportion savings based on income, you can manage your finances to adequately pay your bills and avoid late-payment fees and penalties.
Calculate your income and when you will receive pay as best you can, using last year’s income records and your anticipated payments for this year. List each different income source separately so you’ll be able to quickly update your budget should one not come through.
Create a budget document that lists your expected income and expenses in the months you expect them to occur. For example, if you have quarterly car insurance premium payments, place those expense numbers in the months they will come due, rather than entering an average amount for each month. List your expenses in two sections: fixed and discretionary. Discretionary items include such expenses as entertainment and dining out. Fixed expenses include rent, car and student loan payments. Do not include savings categories, such as retirement, home down payment, college fund or vacation.
Enter your anticipated income and expense numbers for the year into your document. Subtract your expenses from your income to determine if you will have enough money to pay your bills for the year. Find any months when your expenses will exceed your income. Calculate scenarios where one of your expected income sources does not occur during a month to see how this affects your budget. If your expenses exceed your income, look at discretionary expenses you can reduce or eliminate.
Create a savings category for saving money to pay bills during months when your expenses exceed your income. Create a list of savings categories that use a percentage of your net income to contribute. For example, you might contribute 10 percent of your monthly excess income to your retirement fund, which will receive no contribution in months when your expenses exceed your income. Re-examine your budget document to see how these contributions affect your numbers and if you will have enough of a safety net to pay bills during months when you expect a deficit.
Enter your income and expenses into your document as they occur each month. Check the effect on your annual projections to determine if you need to cut expenses or if you have extra cash to reduce debt or increase savings in certain areas.
Items you will need
- Last year's income and expense records
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