SOMETIME last year while collecting data for a research I was conducting on the taxation of the informal in Ndola, I had a rare privilege of interacting with a number of players in the informal sector – mostly carpenters.
This experience gave me insight into some of the financial dynamics that people in the informal sector face, and it also brought to light a number of differences between people in the informal sector and those in the formal sector.
One obvious difference is that people in the formal sector have a regular and somewhat predictable monthly income whereas their counterparts in the informal sector have irregular, unpredictable and sometimes unreliable monthly incomes.
This one difference is enough reason why not all money management strategies that are ideal for people in formal employment are equally ideal for those in informal employment – especially strategies on budgeting.
Most advice on budgeting makes the assumption that everyone is working with a fixed amount of income each month.
But what if you are not? People who are self-employed and whose monthly income is not fixed such as Carpenters, Mechanics, Freelancers and Artists are all subject to inconsistent incomes that fluctuate from month to month.
As you would imagine, budgeting for such people is often very difficult as it is not easy to predict the correct income amounts.
If you fall in this category of people then I believe you will find this article helpful. Today’s article looks at five budgeting tips for people with irregular monthly incomes.
The first tip is that you need to establish your average monthly income.
Agreed that you cannot predict the exact income at the end of the month, but you can identify the average monthly income by observing your incomes over a space of say six months.
This will make your income a bit predictable and help you in planning, at a minimum, for the vital monthly expenses.
The second thing you need to do is to identify and fit into the correct lifestyle given the average monthly income you established.
This will help you to identify your correct place and correct expense amounts for vital monthly expenses such as rent, utilities, transportation and food.
In your expenditure, it is important to prioritize expenses such as the ones listed above so that in months where you do not make much, you will still be able to live with the bare necessities.
Thirdly, you need to start saving for emergencies.
When you have an irregular income, saving would perhaps be the most important money skill you need possess. Particularly saving for emergencies is very important when you have an irregular income as calamity often strikes when you least expect it.
The worst thing would not want to happen is for you to have an emergency in a month when you have made close to nothing.
It is important to mention at this point that, if you can afford, it is very wise for you to get insurance for some emergencies such as health.
The fourth thing you need to learn to do is to use extra cash wisely.
Much as your income may be irregular, you will often have certain months where you make much more than you expected. Sometimes the income may be so high and the temptation will be for you to spoil yourself and splash out so as to recover the lost joy in the months where you did not make as much.
A good practice however is to remember to save for the lean times and where possible reinvest in your business so that you can increase your average monthly income.
So then on every rainy day, always remember that winter is coming.Lastly, when budgeting, at all times take into account variable expenses that do not appear on your budgets every month. These could be things such as your motor vehicle insurance, road tax or back-to-school expenses.
It is easy to plan for the regular monthly expenses but do not forget to plan for these irregular expenses that only come occasionally.
They may not come often but they can easily throw things off when you are not ready for them. If you fall into the category with an irregular and unpredictable monthly income, it is important for you to adopt these strategies for your budgeting so that you can establish a smooth lifestyle for you and your family.
Just because your income is irregular should imply that your lifestyle should be too. You can manage your finances better.
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