Budgeting Irregular Income Is Difficult Because of Timing

If your income changes from month to month, creating a household budget can be frustrating. You may know approximately how much you'll earn over the course of a year. You may even earn enough to comfortably cover your expenses. But that doesn't mean the money will arrive when you need it.

That's the problem with irregular income that a monthly budget can have difficulty showing. The issue isn't always how much money you earn. Sometimes it's when you receive it.

Irregular Income Changes the Timing

Consider someone whose income varies throughout the year. A freelancer may have several large payments arrive close together and then go weeks without receiving another one. A salesperson may receive commissions in addition to a regular paycheck. A seasonal worker may earn considerably more during some parts of the year than others. A household may simply have two people who are paid on different schedules.

The bills don't necessarily cooperate with those income schedules. The mortgage still comes due. Utilities need to be paid. Groceries and gas are needed throughout the month. Insurance premiums, credit-card payments, subscriptions, loan payments, and other expenses each occur on their own schedules.

This creates an important distinction. A household can have enough income and still have a cash-flow problem. The money may be coming. It just may not be there yet.

A Monthly Total Can Hide the Problem

Suppose you expect to receive $6,000 during a particular month and expect to use $5,500. On paper, that looks fine. There's $500 left over.

But suppose $2,000 of the income arrives on the 5th and the remaining $4,000 doesn't arrive until the 27th. Now suppose the mortgage, utilities, credit-card payment, groceries, and other expenses require $3,500 before the 20th.

The monthly numbers still say you have enough money. The calendar says something different.

That's why irregular income can be so difficult to manage with a budget that primarily compares income and expenses by month. The totals may work while the timing doesn't.

Your Expenses Have Timing Too

Irregular income is only half of the equation. How you use your income also occurs through time.

Some expenses happen every week. Others occur monthly, quarterly, semiannually, or annually. Some are predictable but don't fit neatly into a recurring schedule. You may know that you'll need $1,200 for an insurance premium three months from now or that you're planning a $2,500 vacation next summer.

So the household isn't really trying to match one monthly income number against one monthly expense number. It's coordinating income arriving at different times with uses of that income occurring at different times.

That's a cash-flow problem. And once you look at irregular income that way, the problem begins to look different.

What Happens When More Income Arrives?

There's another side to irregular income that can be just as important. Suppose an unusually large payment arrives and your checking-account balance suddenly looks healthy. How much of that money is actually available for something new?

Some may need to remain available because you know the next few weeks will bring less income. Some may be needed for bills that won't arrive until next month. Some may already be intended for savings, debt payments, taxes, or a future purchase.

The account balance can't make those distinctions. It only tells you how much cash you have right now. With irregular income, knowing what that cash needs to carry you through becomes especially important.

What If You Could See the Timing?

Instead of starting with monthly totals, imagine placing your expected income on the dates you expect to receive it and the ways you plan to use that income on the dates you expect those uses to occur.

Now look forward.

You could see the effect of a bill before it arrives. You could see the period between two irregular income payments and whether enough cash remains available throughout that period. You could see a future low point before you reach it.

That changes the question from "Will I earn enough this month?" to "Will I have enough cash available when I need it?"

Those sound like similar questions, but they're not. The second one accounts for time.

How You Need A Cash Plan Handles Irregular Income

This is one of the reasons You Need A Cash Plan works differently from a traditional monthly budget.

You Need A Cash Plan creates a twelve-month cash plan from descriptions of your household's income and how you plan to use it. If income arrives every two weeks, monthly, seasonally, on particular dates, or according to another schedule, that timing becomes part of the plan.

The same thing happens with the uses of your income. Recurring bills, everyday spending, credit-card payments, savings, debt payments, sinking funds, and planned purchases are incorporated according to when they are expected to occur.

You Need A Cash Plan then brings the two sides together. Instead of simply showing how much income and expense you expect during a month, it shows the resulting flow of cash through your household over time. That means you can see what happens between income payments.

Irregular Doesn't Have to Mean Unmanageable

Of course, irregular income sometimes means uncertain income. A freelancer may not know exactly when a client will pay. A commission may be larger or smaller than expected. Seasonal income may vary from one year to the next.

A cash plan can't eliminate that uncertainty. What it can do is make the information you do have visible.

When something changes, the description of that income can change. The cash plan then reflects the new information. Instead of trying to predict the future perfectly, you're keeping your view of the future current with what you know today.

Timing Is the Missing Dimension

When people struggle to budget irregular income, it's easy to assume that irregularity itself is the problem. Sometimes it is. But often the difficulty comes from trying to manage a timing problem without being able to see time.

Your income doesn't simply have an amount. It has an arrival date. Your bills and other uses of money don't simply have amounts either. They happen at particular times.

You Need A Cash Plan puts those things together in one continuous cash plan so you can see how the arrival and use of income interact before they happen.

Because when income is irregular, knowing how much money is coming matters. Knowing when it's coming—and what it needs to do before the next income arrives—matters just as much.