How to Budget When Your Income Isn’t Steady

Patrice just opened her own hair salon. While she waits for her customer base to grow, her income has highs and lows — but she still needs to pay monthly expenses like rent and equipment loans.

Louise works in retail and business fluctuates with the economy. Sometimes her hours are cut, while other times she works overtime to meet demand.

Frank and Maria are freelance graphic designers. A married couple, they have a joint income, but go through “feast or famine” cycles with their clients – and often have to wait as long as 90 days to get paid.

An irregular income can take your budget on a rollercoaster ride of ups and downs. Whether your income is up or down, your essential expenses – things like food, rent or mortgage, transportation, utilities and childcare – will always be there.

Staying one step ahead of your finances is key to making life work when you have variable income. The following tips can help you take control.

Tips for budgeting on an irregular income

• Calculate your average monthly income
  No matter when you get paid, creating a budget starts with figuring out how much money you have coming in each month. That can be hard with variable income, but it’s not impossible. One strategy is to divide last year’s income tax filing by 12. This will give you a monthly average of what you made. If you’re new in your field, ask people in the same industry for an estimate of how much they make per month. Remember that this may vary depending on what area of the country they work and their experience level.

• Figure out your baseline expenses
  Now it’s time to determine the expenses you absolutely need to pay to stay afloat. These are typically things like rent or mortgage payments, utilities, groceries, insurance, car payments or other transportation costs (including gas) and credit card or loan payments. Don’t forget to include any business-related expenses you may have, such as cell phone or internet service.

• Subtract your expenses from your lowest monthly income estimate
  You’ve crunched some numbers, now it’s time to make a budget based on your income. Since an irregular income can have highs and lows, play it safe and subtract your baseline expenses from your lowest monthly income estimate. If you have enough, that’s fantastic. If you have some left over, even better. Use that for non-essentials and put the rest in an emergency fund (more on that shortly).

• Pay yourself a salary
  A great way to budget when you have an irregular income is to pay yourself a monthly salary. Once you determine how much you absolutely need to make each month, transfer exactly that amount into your checking account at the beginning of the month. If your budget allows for it, don’t forget to factor in a set amount for monthly savings and non-essentials like entertainment and meals out.
  
  Since this method requires a month’s worth of income on hand, it may take time to get to this point. But, once you’re able to do it, and as long as you remain disciplined, it’s a great way to stay on track.

• Supplement your income when you need to
  Don’t worry if your calculations prove your pay may fall short. It’s easier than ever to earn extra money on the side. From driving an Uber or Lyft to dog walking and food delivery, today’s gig economy offers flexible money-making opportunities galore. Even better? You don’t even have to leave home to do it.

• Build your emergency savings
  Having emergency savings (also called an emergency fund) is extra important when living through “feast or famine” pay cycles of variable income. In those lean months, you’ll need to have enough to get by. That’s where your emergency fund comes in. You should also have enough to cover unexpected expenses, like car or home repair, so you don’t have to charge them to a credit card.

• Adjust as needed
  Living on irregular income can be tricky. Remember that it will take time to get your budget right, so give yourself the freedom to adjust it as needed. You may find that a combination of these suggestions work. The most important thing is that you’re paying for essentials and saving along the way. How you do it is ultimately up to you.

Stay focused

Whether the economy has pushed you towards a variable income or you’re pursuing your dream job, put these practices in place and remain patient. Staying on top of expenses and planning ahead will give you peace of mind — and valuable financial wiggle room when going through highs and lows of an irregular income.

This article has been updated from its original posting on October 21, 2020. Kim Gallagher contributed.