If you’re a contract worker— and more people are these days— you probably have irregular hours and pay. So how do you budget? We’ll give you some tips to help you budget, even if you’re living on an irregular income.
New data shows that employers are using about 25% more contract workers now than a year ago, largely due to fears of recession. That means a lot more people are struggling to budget with income that varies from week to week.
But the need to budget doesn’t change just because your paycheck does. Spending less than you earn is the key to every financial success. It’s the foundation that everything else is built upon. It’s nearly impossible to stay out of debt and save without a spending plan.
This is a plan for your money. It gives each dollar a job and directs the flow of money in and out of your accounts. You’ll never be able to maximize your giving and saving without a spending plan.
And this applies to everyone … whether you’re an employee or a contract worker. It’s imperative as a Christian that you wisely manage the resources God’s given you.
Proverbs 27:23 reads, “Know well the condition of your flocks, and give attention to your herds.”
Having a spending plan means you know— either specifically or on average— how much you have coming in and going out and where those monies are directed. You’ll have to give an account someday for how you manage money … so you need to have a plan.
WHAT KIND OF BUDGET?
Now, the format you choose for your spending plan is up to you. You can use pencil and paper … or you can take a digital approach and for that we highly recommend you check out the Free FaithFi app, available in your app store...
It will help you set up your budget using the tried and true envelope system and it has the best financial content from a host of Christian authors like Shauntee Feldhahn, Art Rainer and Randy Alcorn. So get the FaithFi app if you haven’t already.
No matter which approach you choose, begin by tracking your expenses for 30 days. Capture every expense no matter how small. Then, think about the non-recurring expenses and add them in with a monthly amount needed to have what’s necessary when that expense rolls around. This would be quarterly insurance payments, annual homeowners association fees, vacation expenses, and your Christmas fund.
Then, take that 30 days of actual spending, plus the non-recurring expenses we just mentioned, and build a budget by category. Once you take a first pass, you’ll need to do the hard work of bringing the budget in line with your income and making sure that your spending reflects your goals and priorities. If it doesn’t, that’s where you need to start cutting back and making changes.
By the way, if you use the FaithFi app, you’ll find its envelope system particularly helpful for controlling the flow of money in your discretionary categories, which are the typical budget busters because they vary from month to month. These are things like eating out, shopping for clothes, gifts, and entertainment.
BUDGETING IN A MARRIAGE
You’ll also have to decide who manages the budget going forward, husband or wife?
We all have different gifts and talents. Sometimes the more detailed, organized person is the wife, sometimes it’s the husband. You’ve got to figure out what’s the best approach for you.
You can have one person being the bookkeeper, and we recommend that you do, but both spouses need to be in on the plan and the commitment to sticking with it. This is why we recommend that you have a weekly “money date.”
That’s when you come together each week to review the spending for the last seven days, make course corrections, and address the unexpected. And of course, the unexpected is always going to happen.
VARIABLE INCOME
So we’ve covered the variable expenses. Now here’s what you do about variable income— which is key for most contractors. Start with what you do know. What was your average monthly income for the last six months? Can you reasonably expect to earn the same amount in the next six months?
The goal is to arrive at a budget that can be covered by the average (or slightly below average) amount you expect to earn each month. In the months that you earn more, keep the excess in savings to fund the lean months.
You may also want to consider depositing all of your income into savings and then transferring only a set amount each month for living expenses. Then every six months or so, reassess your average income for the period and make necessary changes to your budget. And that’s how contractors— or anyone— can budget successfully on a variable income.
On this program, Rob also answers listener questions:
Where should you give your tithes if you do not yet have a church home?
Instead of saving a lump sum to pay off an auto loan, is it better just to pay more than the minimum each month?
What is the wisest way to go about drawing a monthly income on your retirement savings?
Be sure to check out the rest of FaithFi.com to access our books and our many free helpful resources. You can also find us on Facebook Faith and Finance (Live) and join the conversation. Thanks for your prayerful and financial support that helps keep Faith and Finance (Live) on the air. And if you'd like to help, just click the Give button.
