How To Live On Last Month’s Income (And Why You Should)

A budget calendar to learn how to live on last month's income

Learn how to use the one month ahead budget

About a year ago, I decided to start budgeting a month ahead and living on the previous month’s income.  This one change has made a *huge* difference in how I manage our money, and budgeting on a variable income is now so much easier!

Of course, you need to have enough cash in the bank to fund this budgeting method.  This means saving up to cover at least a month of expenses.  If you’re living paycheck to paycheck, you might think that would be an impossible task.

But, budgeting a month ahead will actually help you break the paycheck to paycheck cycle.

If you don’t have enough yet to budget one month ahead, keep reading to find out how you can build your savings and learn how to live on last month’s income.

Even if it takes you several months to get there, it’s so worth it! You just need a plan, persistence, and patience.

I’ll also tell you the advantages of budgeting this way, and why it’s a better option than traditional budgeting (in my humble opinion).

What is a one month ahead budget?

Budgeting one month ahead means you use your income from the previous month to cover the expenses of the current month.

Instead of paying bills throughout the month (as paychecks get deposited), you start the month with all the income you made from the last month, so you can pay all of your bills at the same time.

What’s left is budgeted throughout the rest of the month for food, gas, and other expenses.

And, as your paychecks hit your bank account, you save all of them for the following month.  When a new month begins, you transfer all of that income to your checking account and start again.

With this budgeting method, you can get all of your bills covered at one time, and then know exactly how much is left for the rest of the month.

This works great for variable income!  No more wondering if you’ll have enough to pay for bills due towards the end of the month.

How to save enough to budget one month ahead

The hardest part of budgeting with last month’s income is saving up enough money – but it *can* be done!

The key is finding even just a little extra cash in your current spending plan.  Track your expenses and find the money leaks.  Even if it’s just $50 a month, start setting this amount aside for your one month ahead budget.

You can also choose to designate a certain percentage of your income to build up your one month’s income.  Then, you’ll need to commit to living off what’s left until you’ve got the one month saved up.

It would look something like this:

  • You make $5,000 a month (net) and want to save 10% toward building up one month’s income.
  • Every month, you set aside $500 (10%) in a separate account.
  • You budget with what’s left ($4,500).
  • After 10 months, you’ll have one month’s income!

I know this might seem like a long time to save money just so you can budget differently, but it’s worth it!

Besides, saving money and living on less than you make are excellent disciplines to master.

How you can pay all of your bills once a month

Typically, budgets are created to manage money that’s expected to be earned.  As each paycheck gets deposited, you use a budget to determine how you will allocate those funds.

If you live on a variable income, this can make things a little tricky and unpredictable.

For example, we rely on my husband’s overtime hours to cover our expenses.  However, those hours differ every week.  So, I don’t know exactly how much we have to budget with until each payday.  This can be stressful!

When you budget using the previous month’s income, you’re only managing money you already have. 

This means that all of the money you budget with this month is money you earned last month.  And all of the money you make this month will be saved and budgeted for next month.

One of the best things about starting each month with an entire month’s income is that you can pay all of your bills in the first week.  You don’t have to wait for next week’s paycheck to cover that credit card bill.  You can knock out all of your monthly bills at once and be done with it.

Then, you know exactly how much is left for other necessary and discretionary expenses for the rest of the month.  No surprises, no guessing, no stress.

As you can imagine, this method eliminates several problems that can arise with a variable income budget.

But, there are other great advantages to budgeting this way, too!

Advantages of budgeting one month ahead

I have been using the one month ahead budget method for a couple of years, and I may never go back to traditional monthly budgeting.  It makes managing variable income easier in so many ways.

You’ll have less financial stress.  A lot of worrying and anxiety with finances is tied to uncertainty.  Will you have enough to cover all of your expenses? When you budget with money you already have, there is no uncertainty.  You always know exactly how much you have to work with.

You can pay all of your bills at the beginning of the month. On the 1st of each month, I transfer the income we earned the previous month into our checking account.  Then, I pay all of our bills for the entire month, along with our tithe.  I don’t have to “time” any bills, and I know exactly how much we have left for everything else.

You’ll learn to spend less than you earn.  As you build up one month’s income, you learn how to live on less.  In order to save up this amount, you have to cut out some unnecessary expenses and plug the budget leaks.

Budgeting on a variable income is so much easier.  This was the main reason I started using this method.  I was always struggling with budgeting the variable weekly paychecks and not running out of money before the next paycheck.  Now, I know exactly how much we have for a whole month, and I keep track of how much we’ll have the next month as each paycheck comes in.

You may find it’s easier to be consistent with charitable giving.  Before we switched to this method, I rarely gave 10% to our church.  Instead, I would just give what I thought we could afford each week.  Now, I give our full monthly tithe by the 2nd of each month – before it gets spent on other, less important things. This is a high value for us, so this benefit alone makes it worth it.

You have a financial buffer. When you’re always a month ahead, you’re better prepared for unexpected expenses. You have more wiggle room with costs you didn’t plan for, which allows you to rearrange your budget when necessary.

You break the paycheck-to-paycheck cycle.  This is a biggie.  You’re no longer stretching your dollars to the next paycheck.  You don’t think in terms of budgeting from one payday to another. Instead, you’re always a month ahead, your bills are always covered, and you know exactly how much you have for each 30-day period.

Take control by living on last month’s income

Budgeting with the previous month’s income is a method that allows you to always be a month ahead in your finances.

Basically, it’s the same thing as having a one-month emergency fund for your regular budget.

Starting each month with all the money you’ll need to cover your expenses is incredibly freeing.  There is no more waiting to pay bills until you get paid, or waiting to see how much you’ll have left to put into savings.

You can designate where all your money will go at the beginning of the month, and know how much is left for daily living.

I would especially recommend it for those who live on a variable income.  You’ll feel much more in control of your finances.

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How To Live On Last Month’s Income (And Why You Should)

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