How to Budget When You Have Seasonal Income

Rewarding careers don’t always come with a steady paycheck. For people who work in agriculture, construction, tax preparation, entertainment, landscaping or other types of freelance and seasonal businesses, income may vary wildly depending on the time of year. This uneven cash flow makes budgeting especially challenging, but it’s by no means impossible.

Here’s how to budget for long-term financial stability when your income changes with the seasons.

Determine your average monthly income

With most traditional budget plans, you start by determining your monthly income. But how can you complete this first step if your income keeps changing? The most effective strategy is to use your average monthly income. To calculate this, add up your post-tax income for the past three or more years and divide that sum by the total number of months. If economic conditions have — or are projected to — hit your industry or business hard, you may want to deduct 15% to 20% from this number to create a safety cushion.

Calculate your average monthly expenses

When work is seasonal, expenses often fluctuate, too. During busy times, you may have to spend more on gasoline, utilities, equipment maintenance and office supplies. If you spend more during your busy season, determine your average monthly costs by adding up your personal and work-related expenses for at least one year and dividing that figure by the total number of months.

Fine-tune your budget

Subtract your average monthly expenses from your average monthly income to get your baseline budget figure. If you find you’re cutting things close or dipping into the red, you’ll need to make some adjustments. Consider cutting unnecessary expenses or picking up extra income by expanding your existing business’s volume, taking temp work during slow times or offering complementary services that peak during your off-season.

Become a saver

Having a savings plan is an especially important safety net when income is irregular. When planning your budget, be sure to include a line for saving each month. It’s best if you can put away 10% or more of your income, but even small amounts deposited consistently add up significantly over time with compound interest. Aim to save at least three to six months’ worth of expenses to ensure you can live comfortably during lean times or emergencies.

Additional survival tips

To help even out cash flow and make the most of seasonal income:

Make it easier for customers to pay you quickly by improving your invoicing procedure, offering options such as PayPal or Square to accept credit card payments, or setting up direct deposits to your account with customers.
Negotiate with vendors and suppliers for discounts or extended payment terms.
Take advantage of financial and budgeting software such as QuickBooks.
Consider offering discounts and promotions during slow times to boost business.
Track your cash flow regularly and adjust your budget as necessary.
Even with your budget plan in place, keep spending to a minimum during slow seasons.
Stick to your budget during your busy season to avoid spending the cash you’ll need during the down times.

Seasonal income doesn’t have to mean financial feast or famine. With proper budgeting, you’ll be able to live well no matter what the season.

Financial Management Tips

You’re busy, and we understand that. Between work, your family and what feels like a million other things, sometimes effectively managing your finances doesn’t make it to the top of the priority list. But having organized finances makes managing your finances easier and helps you get into a routine. Iowa State Bank is here to offer you some tips that will make managing your finances easier.

Start Maintaining a Monthly Schedule

For the most part, the bills you receive every month come at a certain time and have a certain due date that doesn’t change drastically from month to month. By developing a monthly schedule that tells you when bills need to be paid, and how much you need to pay each month, you can find out where you can save for an unexpected expense.

Organize Your Documents

This strategy is really no different than what you used to do in school by dividing materials for different classes into different folders. If you know where everything is, you’re likely to have fewer problems managing your finances. Develop a system to help you organize your different monthly bills, like your credit card statements, student loans or mortgage paperwork, and store paperwork related to those materials in their proper place each month.

Technology is a Big Help

Whether it’s receiving e-statements so you have a copy of your bank statements in your email inbox or using our online banking and bill pay services, Iowa State Bank offers services to make banking easier. These services allow you to set up recurring payments for bills and to check your balance with a simple login to our secure system.

Iowa State Bank wants to make your banking experience simpler. We offer several online banking services to help make managing your finances easier. And if you use these tips, you can help make things easier for yourself, too. If you want more advice about organizing your finances, please contact us.