What Is an Irregular Income?

Irregular income is when your earnings vary from one month or season to the next. This can be common for business owners, freelancers, hourly workers, and teachers who don’t receive paychecks during the summer. Understanding your income patterns is crucial for financial planning.

The Importance of Determining a Baseline Income

To manage your finances effectively, it’s essential to determine your average earnings. This helps in building a realistic budget and saving for the future. Review your monthly earnings from the past year or two to identify trends and low points. This will help you create a budget based on a conservative estimate of your income.

How Much Should You Save With an Irregular Income?

The amount you save depends on your income and financial goals. Here are some general guidelines:

• Emergency Fund: Save three to six months’ worth of expenses to cover unexpected financial surprises.
• Retirement: Aim to save 15% of your income for retirement during your 20s and 30s, and 20% thereafter.
• Other Financial Goals: Save for goals like buying a home, paying down debt, or your kids’ college education. Save bit by bit each month to reach these targets.

How to Save Money With Irregular Income

1. Start With Your Baseline Income

Refer back to your baseline income and review it every few months. Don’t forget to account for taxes, especially if you’re self-employed or freelancing. This helps you estimate your true take-home pay.

2. Look at Your Expenses

List all your monthly expenses, including housing, utilities, debt payments, groceries, transportation, medical expenses, and discretionary spending. Determine the minimum amount you need to cover these expenses each month.

3. Account for Your Financial Goals

Consider your financial goals, such as strengthening your emergency fund and saving for retirement. Allocate any extra income towards these goals. For example, if you have an extra $1,500 after covering your bills, you might put $500 into a retirement account, $500 into your emergency fund, and $500 towards a house down payment.

The Bottom Line

Saving for the future with irregular income is challenging but possible. It requires understanding your income and expenses, creating a flexible budget, and sticking to it. For expert mortgage services, call O1ne Mortgage at 213-732-3074. We’re here to help you achieve financial wellness.