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How to Budget When You’re on Inconsistent Income

Travel Tips

Budgeting for travel is hard enough as it is. But add in a job that provides inconsistent income it may seem impossible. After years of trial and error, I finally figured out a way to stop stressing about budgeting and save for travel (and retirement!) all at the same time.

The Tricks

1. Paying myself a monthly “salary”

2. Thinking of travel savings as an additional bill each month

3. Getting to the point where I was living off the previous month’s earnings

Two quick things before we begin:

  • This concept is tricky and much easier explained in video format. I highly recommend watching the video above before reading the article.
  • This guide assumes you already have an emergency fund set aside. If you don’t you need one. Check out this article to help you create one.

Step one: Make it or break it money

Before anything else, you need to know your baseline expenses. These are the things you can not live without. Think rent, electricity, transportation, groceries, loan repayments. Fixed amounts, like rent and loans, are easy to add into your budget. Fluctuating expenses are difficult to estimate. I always budget using inflated numbers. Better to budget more than end up short.

Once you have all your expenses laid out, think of this as your “make it or break it” number. As you are earning money throughout the month you know this is the number you HAVE to reach to continue living. Let me tell you, it feels really good reaching that number in the first half of the month. It automatically puts you at ease. Conversely, if the month is coming to an end and you haven’t hit this number yet, you know it’s time to pick up some shifts.

Step two: Taxes

This step is optional and depends on what type of job you have. If you know you work a job where most of your taxes are paid at the end of the year, make sure you are saving every month for taxes! Use a tax calculator, like this one from TurboTax, and calculate your tax burden off a hypothetical (and highly inflated) yearly earning. Divide by 12 and add this number into your budget.

Step three: Travel Bill

Your final job is creating a “travel bill”. This should be a specific $ amount that is your goal to save every single month. When you treat this goal like a bill you account for it before you start spending your hard earned cash on things like shopping and shots.

Side note: This is also where you would set a savings goal for things like retirement. Here is why you should start saving for retirement while you’re young.

Step four: Add it up

Make it or break it money + tax savings + travel bill + other savings bill = Monthly Budget

This monthly budget now becomes your salary. You are going to pay this to yourself at the beginning of every month. Where exactly you are “paying” this money to is next…

Finally, any extra money left in your account after you pay yourself your salary becomes your fun money. Use this for things like shopping, eating out, drinking, etc.

Step five: Multiple Bank Accounts

I am a big fan of having multiple bank accounts to organize your life. I suggest starting with at least three accounts. (I swear I’m not crazy, keep reading).

Account A: Income

Account B: Bill

Account C: Savings

Your Accounts in Action

During the month, as you work, add your earnings to account A. At the beginning of every month, pay yourself your entire “salary” to account B.

Throughout the month, you pay bills as they arrive from account B. You also pay your saving/travel “bills” from account B into account C. Again, you should never touch account A to pay for anything. Account A only receives deposits as you make money throughout the month.

 How to Budget on an Inconsistent Income

Final Thoughts

Getting to the point where you are using money from last month for bills this month is the hardest part. My best advice, and what I did, is to open an extra account and slowly start saving any extra money each month there. To speed up the process cut off fun spending for two weeks or pick up extra shifts. Eventually, you will get to the point that account B has a full month’s salary in it.

Remember, this is just what works for me! I would love to hear your thoughts. Leave a comment below and let me know your budgeting goals!

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