We can’t change the fact that you don’t know exactly when or how much money you’ll bring in this month, but we can teach you to be in total control of the money you do have right now, and stress a little less about it. This eight-part series will teach you exactly how to budget successfully and make your money stretch, unpredictable income and all.
Ok, lovely. So you are resisting the urge to forecast. Actively not forecasting.
In order to do that, you need focus on dealing with what is known. Sounds good, except, isn’t the whole point of the budget to help with the unknown? Well, yes. (Disclaimer: This next bit is going to feel counter-intuitive at first. Stay with us!)
You Know Far More Than You Think
All those unknowns in your financial life? A decent amount of them are more knowable than you might realize.
It’s tempting to think about the bills that happen like clockwork every month (rent, phone, cable, internet, utilities) as the only knowns in your budget. They might be your “regular,” monthly expenses, but they are not all of your monthly expenses. Not even close.
You have to factor larger, less frequent expenses into the monthly equation. The big, lumpy, tricky expenses that scare you because they loom large, but are far away and vague enough to ignore. Except that is how you get into trouble. You’ve been tricked into thinking of things like auto repairs and insurance premiums as one-offs and outside your “normal, monthly budget.” Maybe you honestly didn’t consider it. Or maybe you did, but thinking of expenses like this, would mean the answer to “Can I afford this?” would be no a lot more often, and so you jumped ship.
But this is the key.
Embrace Your True Expenses
You know that your car will break down, or you will have to pay for your car registration or association dues or Amazon Prime membership, and so on and so forth. You might not always know exactly when these things will happen or exactly how much they will cost, but you know they are coming. To not factor them into your monthly expenses is akin to burying your head in the sand.
If you put $10 away every month for your car registration, when it comes due, that $120 is just sitting there waiting to do its job. And $10/month is far less stressful than scrambling to come up with $120 or worse, adding that balance to your credit card to accrue cost in the form of interest. By breaking it up into smaller, manageable pieces, and treating it like a monthly expense, you won’t be caught off-guard. You will also have a more realistic picture of your finances.
This is good advice for anyone, but if you are living with unpredictable income, embracing the true expenses of your essentials is truly a game changer. Otherwise, you know that the month when an “unknown” expense hits will send you stress spiraling once again (even if you’d been budgeting like a rockstar up to that point).
Break Down Non-Monthly Costs
Truth be told, many of our true expenses are very cut and dry. They may not come due every month, but they are still very predictable. Your insurance premium is due every year, at the same time, and for likely, nearly the exact same amount as last year.
So why is it difficult? Because sometimes it’s easier just to think ahead to next week, and it doesn’t feel like you can even comprehend what six months from now will hold (fair, valid, but you can still see some of these coming!). True, you’re in an extra lean month with uncertainty in sight and it doesn’t seem like the right time to start shoring up for these one-off expenses. But if you can just break them down, think about them, they won’t seem so earth-rattling when they hit.
The Benefits Outweigh The Sacrifice
That $120 renter’s insurance bill due in three months? Take $120, divide by three and budget $40 every month until then. Think of it as a monthly bill just like Internet. Treat it like a non-negotiable, like it’s just another part of your monthly obligations.
Will you feel like you have less discretionary money on a month-to-month basis? Yes.
But when you are able to pay for these big essential bills without any stress or guilt, it will be more glorious than you ever thought possible.
Breaking these expenses into their monthly cost will take the pressure off of your income to be perfectly stable, giving you more flexibility in the months to follow. Pretty soon, as you prepare and save for your true expenses, the unexpected bills won’t catch you off guard anymore. You’ll be ready for them.
Start thinking through your true expenses, and how you should redefine and calculate your monthly expenses. Next up, we’ll talk about what to do when, despite your best efforts, you are still blind-sided (because it happens. Hello world. Case in point.)
Next up, Part 5: How to Make the Money You Have Last Longer