Why Use a Flexible Budget?

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A flexible budget will change each month. It takes more work at the beginning of the month, but it allows your budget to adapt to changes, such as unexpected expenses or fluctuations in income. A flexible budget works for people who work on commission or who have expenses that vary widely from month to month. The important aspect of using a flexible budget is to spend equal to or less than the income each month.

Adapts to Your Current Needs

  • A flexible budget allows you to transfer money between categories and to create new spending limits as needed. If your water or electric bill is significantly higher in winter, you would adjust your budget by transferring money from a different category. But as with any budge, your expenses should never be more than your income.

Good for an Irregular Income

  • A flexible budget allows you to plan expenses according to what you have made. When you do not make as much money, you would cut back to necessities only. Then during higher earning months, you would save for the months when your income will be lower again. Set a spending threshold that covers your basic necessities, such as housing, food, utilities, gas. Beyond that threshold if you make more money, contribute a set amount to savings. For example if your basic needs can be met with $1500, then once you earn that for the month, contribute the first $300 to savings and spend the rest the way you want to. Or set a percentage, such as 50 percent of money earned beyond your threshold goes to savings and 50 percent is fun money.

Covers Emergencies

  • A flexible budget allows you to transfer money to cover an unexpected emergency room bill or car repair. When you transfer the money over, reduce the budgeted amount in the category you "borrowed" the money from. If a budget does not allow for flexibility, an emergency can make it difficult to meet your financial obligations. Create wiggle room by having a savings or miscellaneous category each month.

Creates Spending Awareness

  • A flexible budget requires you to monitor you spending, which may help you curb spending. For example, say you have an unexpected repair bill and transfer money from other categories to cover it, so you spend less on entertainment and groceries for the month. When you reduce those categories, you may find that you are comfortable spending less and would rather free up more money for other needs or wants. Use a flexible budget to see on what you consistently overspend so you can focus on staying on budget.

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