Issue Date: June 15, 2008
How to budget when your income is unsteady
Learn to plan for the dips.
By Sharon Epperson
If your paycheck varies from fat to thin, use these tips to help you budget.
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Realtors, salespeople, consultants, contractors and small business owners are among the 10 million-plus self-employed Americans, many of whom don't get a steady paycheck. Their income may vary widely from month to month or week to week. How do you budget when income is unpredictable?
Estimate your minimum monthly income. Ask yourself: "If business goes well, how much will I have? If things go poorly, what will my balance be?" Only count income that is fairly steady. Exclude overtime pay and bonuses. Base your estimate on the lower end of the spectrum.
Add up all monthly expenses: rent or mortgage, utilities, groceries, secured loans (like car loans), health insurance, periodic expenses (auto insurance, property taxes) and credit card debt. Don't forget about taxes. If your employer doesn't withhold them, put 25% to 30% of your gross pay into a money market or savings account to pay quarterly estimated tax payments. Make sure your minimum monthly income can cover these basics.
Get a part-time job if your minimum income doesn't cover living expenses. Income from a more reliable side job can make up the difference.
Don't get discouraged. Allow at least three months to determine a realistic budget. You'll get a better idea of how much you really spend over time and can adjust as necessary.
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