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. You’ve committed to doing things a little bit differently and being the boss of your money. You have a handle on what your immediate obligations are. You have a better sense of what you can afford–and if you can’t afford those immediate obligations, you have a sense of what adjustments you’ll need to make (whether that’s filing for unemployment benefits or calling loan and service providers to see if they offer any hardship options).
However, it still gets pretty fuzzy as you attempt to look further down the road. What will you be able to afford in a month? Or two or six?
This is exactly where people with unpredictable income make a critical mistake. You decide to start forecasting. You decide to start guessing how much money might come in, and “budgeting” with pretend numbers (here’s looking at you, stimulus money!). But it’s a fool’s errand. There’s not a lot of control in pretend numbers. Don’t do it.
Budgeting with money you don’t have yet? That’s a hard no. A little too blunt? Maybe, but we really want to drive this home. Forecasting is not budgeting, and it introduces a lot of additional uncertainty.
It’s ironic because the impulse to forecast is built around trying to resolve uncertainty. You don’t know when you’ll have more money coming in, and you don’t know how much it will be. And resolving that by budgeting with money you guess you’ll have is appealing. You’re trying to think ahead. You’re planning. It’s something, right?
Forecasting–budgeting with money you don’t have yet, just to see what your bank balance might be one month down the road–puts you in a worse position. Here are the dangers:
You Lose Clarity.
When you budget only the money you have and ask yourself, “Can I afford this?”, you get a real answer. Yes. No. Not yet. That’s what you need to know. When you forecast, when you guess about your future income, the answer turns into, “I think so. Maybe.” That doesn’t feel good and it doesn’t help you. And you are very likely to get it wrong. It’s not much better than having no budget at all.
You Miss Out On the Power Of Scarcity.
Working only with the money you already have, you’ll experience a moment when you wish there was more of it. Don’t turn away! This is a powerful opportunity. Notice the creative energy that is unleashed when you have to really think about how to make more money (instead of just hoping it will arrive). Notice how much better it makes you at prioritizing and springing into action.
You Reinforce the Illusion Of Regular Expenses.
Along with guessing your income, in order to forecast, you’ve got to make some assumptions about your spending. Those assumptions are almost always wrong.
There’s no such thing as a “regular month.” Sure, things like your rent payment don’t change. But other expenses come and go, rise and fall. If you assume each of the next few months will be just like this one, you won’t prepare effectively for what might actually happen.
So would should you do? Budget to zero with the money you have on hand. Give every one of those dollars a specific job. If you’ve entered future income in your budget (you know, by faking the date…), yank it out. See what it is like to budget without it.
Notice the feeling of scarcity. And then don’t run away. Instead, arrange your money based on the priorities you have right now. And that’s your next a-ha moment!
Next up, Part 4: How to Make the Unknown Less Stressful