Budgeting
is complicated enough and sticking to it is more arduous. You all know that it
can give you a robust plan to take hold of your outgoings so that you do not
face cash shortfalls. Budgeting is not all about spending less but taking time
out of busy schedule to track spending and finding ways whenever you are off
track.
Many
people fail to make an effective budget despite having a steady source of
income, and if they do, they fail to stick to it that results in cash
shortfalls. Eventually, they end up taking out very
bad credit loans.
Taking stock of spending seems to be more difficult when you have irregular
income. Making a budget means writing down all of your expenses and figuring
out what you can whittle down, but it is not that easy when your income source
is not stable. How will you be able to cut down on your spending unless you
know how much money you are going to have every month?
Having
a control over your finances is crucial if you do not want to fall in debt, and
it becomes more important when your income is fluctuating. Here are some tips you
can follow to create a budget:
Know your baseline
The
first step before taking hold of your outgoings, you should know your baseline.
In addition, you should also know the minimum expenses that you will cover
every month. Look over a couple of months’ spending to grab the idea. These
expenses include only essential expenses such as mortgage payments, rent, utility
bills, transportation, childcare, food and drink.
Just
jot down all of essential monthly expenses so that you know the minimum amount
you have to earn every month. However, do not forget to include savings as your
income is fluctuating.
Cut down on your discretionary expenses
Having
created bare-bones budget, the next step is knowing your discretionary
expenses. These expenses may include entertainment, night outs, dine outs, subscriptions,
gym membership, club membership and money for your hobbies. To get a better
idea of how much money you have spent particularly on discretionary expenses in
previous months, peruse your bank and credit card statement. It may kill your
time, but this is the best way to get a complete picture of sundry leaks in
your budget. Once you have got the list of nonessential expenses, you can cut
back on them.
Build an emergency cushion
Having
an emergency cushion is extremely essential if you want to take control of your
finances. Unexpected expenses can pop up any time regardless of your financial
condition. For people with a steady source of income, emergency cushion should
be three-month worth of living expenses, but it needs to be larger in case of
fluctuating income. You should have at least six-month worth of living cost. This
emergency cushion will help you tide over when you will not have enough income to
meet your recurring expenses.
Try
to cut down on your spending every month so that you have left with more money
to save. The rule of thumb says that you should set aside at least 10% of your
monthly income. Try to have full control over your nature to dip into it. Do
not ignore the importance of building emergency cushion otherwise you will fall
in a predatory cycle of debt.
Be careful with use of your credit card
Since
your income is not stable, you should be careful with your spending. The rule
of thumb says that you should rely on cash as much as possible. If you make
your purchases with cash, you will have a complete idea of where and how much
you spent your money. If you use a credit card for most of your transactions,
it will take a toll on your finances. Not all transactions come within a grace
period due to which interest keeps mounting up every day. Make sure that you
make a purchase with your credit card only when it is urgent and you do not
have cash available. Try to pay off the balance as soon as possible to avoid falling
in a debt trap. As far as it is about grace period, you should pay back the
balance within that time.
The bottom line
Whether
your income is stable or not, you will have to stay financially disciplined to
take control of your expenses. Make a budget, track your monthly spending and build
emergency cushion. Of course, you will have to cut down on most of your
discretionary expenses. Further, you should create a fixed source of income.
For instance, rent out a part of your house. This will help you have more cash
every month.
Description: Know your monthly expenses, cut back
on discretionary expenses, build an emergency cushion and be careful with use
of credit card.