With the cost of living continuing to climb, many households are turning to budgeting to keep spending in check and reach their financial goals. One of the main challenges associated with budgets is adjusting your goals based on fluctuations in your income levels.

In this article, we’ll cover the differences between a static and flexible budget, how to create your initial budget, and the steps to adjust your goals based on changes in your income level.

Static vs Flexible Budget

There are two main categories of budgets: static and flexible. A static budget is a one-and-done type of budget, with no adjustments for changing factors like income. On the contrary, a flexible budget adjusts your goals based on your income levels. For example, if your income is lower by 10%, maybe you need to reduce your restaurant spending or cut back on personal spending.

When it comes to budgeting for your financial goals, it’s important to use a flexible budget. Missing a few hours on your paycheck can completely derail your progress. Adapting to these changes and staying on track with your goals relies on remaining flexible in your budget.

Creating Your Initial Budget

When it comes to creating your initial flexible budget, there are a few different steps you should follow. Remember, the budgeting process should be tailored to your specific situation. The budgeting process that works best for one person might not be the same strategies that work best for you. Nevertheless, here’s how you can create your initial budget.

1. Analyze Historical Data – The first step in creating your initial budget is to look at historical data. What have your spending habits looked like in the past?
2. Create Your Goals – Next, you want to pinpoint your financial goals. Are you trying to pay off your credit card debt? How about saving for a big event? This will help you properly allocate your money.
3. Forecast Income – Now, you want to forecast how much income you will be making. Using a shift tracking app can be helpful in this stage to get an accurate estimate.
4. Outline Expenses – Like income, you will need to have a rough estimate of where your money will be going. Break your expenses out by fixed and variable. Fixed expenses are amounts that don’t change each month, like your mortgage or car payment. Variable expenses change each month, such as shopping and groceries.
5. Piece Together a Budget – Now, you want to start putting together your initial budget. Keeping all of the factors in mind, allocate your income to different expenses, savings, and investment categories.
6. Review for Reasonableness – One of the most important aspects of creating your initial budget is reasonableness. Don’t set goals that you won’t be able to achieve, such as saving £1,000 when you are barely breaking even each month. Set reasonable and attainable goals.

Find the strategies that keep you on track and motivated. Maybe you offer yourself a small reward for hitting a certain milestone or order takeout on the night you review your progress.

How to Adjust Your Goals for Changing Income Levels

Your initial budget should be looked at and updated throughout the month, especially if your income fluctuates. Let’s say that your initial budget shows £2,000 of income. What happens if you were out sick and only made £1,500? How will this impact your financial decisions?

Putting off adjusting your budget until after the month closes doesn’t provide you with the insights needed to stay agile in your financial decisions. Instead, track your income levels with a shift tracker app. A shift tracker app, like Shillings, allows you to estimate your expected income based on the hours you worked. Here’s how you should adjust your goals based on changing income levels.

1. Determine the Adjustment – Using your shift tracking app, determine your new expected pay. Update your income figures in your budget for the new amount.
2. Analyze Impact – Now, look at the individual line items in your budget. Do you need to adjust anything? How are your goals impacted? Do you have less money to allocate to your credit cards?
3. Implement Change – Finally, implement changes based on your income levels. If you pick up a shift and have extra income, make sure you actually use that income for your goals.

This three-step process ensures you are maximizing the effectiveness of your budget, even when your income fluctuates.

Getting Started

Are you ready to start your budget? Follow the steps laid out in this article to see the best results in your financial goals. Don’t be afraid to readjust your budget, even if you are projecting lower income based on the data in your shift tracking app. For more useful information to help make your earnings go that little further, subscribe to our updates below.