Have Irregular Income? Here's How to Budget for It. | The Budget Mom (2024)

2K Shares

Have Irregular Income? Here's How to Budget for It. | The Budget Mom (1)

Let's be honest. Budgeting gets a little easier when you have a steady income, and you can familiarize yourself with careful planning. If you are self-employed, understanding what it's like to have steady income can be challenging. You might be asking yourself questions like: “I don't have a regular paycheck, can I even set up a normal budget? Should I even take the time to attempt it?” The answer to these questions is ALWAYS yes.

A working budget does depend on income; however, it's also a way for you to figure out how much money you need to live the life you want. You then rearrange and tweak the numbers, so you don't exceed your limits. The money you do have coming in should always work for you, not against you. You tell your money where you want it to go based on the things that are truly important to you.

If you have irregular paychecks, you need to be budgeting. That's the simple answer. If you are a freelancer, a temp worker, an artist, a salesperson who depends on commission, a seasonal worker, a cosmetologist, a consultant, or own your own business, then most likely you have fluctuating income. What do you do when most of your income is entirelydependent on how much tips you make in one night? If you are in any of these positions, then this article might help you.

There are three essentialsteps that you need to follow to set up a realistic working budget when you have irregular income.

I like to call this “knowing your starting point.” When your income is predictable, you usually budget your money by creating spending categories within that limit. When you are working with unpredictable income, you almost have to work backwards. Crazy right? You start the process by figuring out how much money you spend to knowhow much money you will actually need. You have to look at budgeting as a balancing act. No matter what, one side of the equation has to be consistent at all times. For example, if you have a steadyincome, then your expenses can fluctuate. If your income varies, then your expenses have to be consistent and fixed. You can make your expenses consistent by turning them into things that are stable, predictable, and repeatable. The thing that helps me is making sure that my expenses are repeated every single month. They don't change.

  • Read:How to Save for Retirement When You Are Self-Employed

When figuring out how much money you spend on expenses, you should only look at the expenses that are necessary, things that you absolutely need to live. Your “starting point” expenses are things that are essential.

FOOD/GROCERIES

When looking at your food expenses, don't include things like coffee, eating out, fast food or alcohol. Try to budget using the lowest food cost that you can. If you plan on couponing or using money saving apps, make sure to take that into account, but if you have no plan on saving money couponing, make sure you always focus on being realistic. A $10 pizza is not $5. I used past bank statements to give me an accurate idea of how much I was spending on food essentials. If your bank statements are useless, track you spending for the next three weeks. Write everything down, and I mean EVERYTHING. This will give you the best overall estimate of where your money is going.

  • Related: 5 Things That Will Help You Stick to a Grocery Budget

MEDICAL COSTS

Are you surprised to see this as a necessary expense? Have you ever read that the number one reason people go bankrupt is due to medical costs? Well, it's true. I know first hand how important it is to have medical insurance. A shattered wrist, a bruised pelvic bone, two black eyes, and a $23,000 medical bill opened my eyes. Hopefully, you will never experience something of this magnitude. Include health insurance in your “starting point” expenses, as well as any past due medical bills.

  • Read: Personal Budget Categories (Organizing Your Budget)

HOUSING/UTILITIES

This is the same for almost everyone. Rent and mortgage are a reality for most people, so make sure to include this in your necessary expenses. If your homeowner's insurance is not paid with your monthly mortgage payment, make sure to add this to your expenses. If you do any work from home like I do, make sure you include expenses such as phone and internet. If you do include phone expenses in your budget, make sure to shop around and get the best deal. If you are married or have a significant other, sharing a plan can be a little more affordable.

GAS/TRANSPORTATION

Do you need to drive to work every day? If you do, you will want to include gas expenses in your budget. Looking at your past bank statements will give a pretty good estimate on how much money you are spending on gas every month. I know I fill up my car about three times a month, so that works out to be around $160 for gas expenses every month. This is a great category to look over and start eliminating or reducing expenses. Do you really need a car or is public transportation available to you? Look over your auto insurance. Do you really need all of that coverage with the lowest deductible? Give your car insurance carrier a call and find out your options and consider shopping around to find a lower rate. It's great to cut costs, but make sure you are still realistic. Don't sell your car thinking you will take public transportation, only to never get on a bus.

Once you have all of your “starting point” expenses listed, its time to add them up.This will tell you how much money you will need to pay yourself every month. Essentially, this is your paycheck.

  • Read: How to Find Extra Money Hidden in Your Budget

This part is a little harder, but not impossible. When your income varies every day, it's hard to grasp how much you make every month. If you work for yourself, there are some people out there who will tell you to add how much you will need to pay in taxes to your “starting point” expenses. You can use an online calculator like this one to calculate those monthly tax costs. The main thing I want you to focus on today is getting a handle on how much income you make every month. For this, I want you to concentrate on the big picture.

For four weeks, track every dollar you actually make. Get a journal or create an online spreadsheet and record your income every day. After four weeks, total up your income and find your average monthly income. Now, if you don't want to wait four weeks, and have kept accurate records of your income thus far, look at your past records to come up with this figure. Finding your monthly average will help smooth out the differences you may be experiencing every single day.

If you have kept long enough records, take it one step further and do another 4-week average. Compare that figure to the first four weeks, and this will give you a pretty good idea on how your income varies. This will also help you establish a margin of error for your budget.

  • Read: 20+ Ways to Make More Money

When creating your budget, it's always best to use values that assume the worst case scenario. What do I mean by that? When figuring out your income, you want to pick the lower of the averagesto use for your budget. If you use the highest average, you might run into the issue of coming up short for the month. So use the lowest average, just to be safe.

  • Resource: Use Steady to find side gigs and make extra money.

It's never too early to start saving. If you find that you have extra cash at the end of the month, make sure you are putting money aside for an emergency fund. It's also not a bad idea to set some money aside into an account just in case you do come up short at the end of the month. This account could be used as a cushion to make sure your monthly essentials are getting paid. I call this an “uh-oh” account. I still work full time, but my business expenses are paid only with business income. If I make more money than what I expected for a month, I will put the difference into an “uh-oh” account to cover expenses when my business income is lower than anticipated.

Having multiple bank accounts has helped me keep track of spending, and has allowed me to keep my budget organized. I currently have six bank accounts, and it has made my life so much easier.

BUSINESS CHECKING

All of my business income gets put into this account. I use PayPal for business transactions, and they make it easy to transfer money directly to my business checking account. I have all business related expenses taken automatically from this account every month, and if there is money left over, I allocate it towards one of the other bank accounts listed below.

PERSONAL CHECKING

Since I still work 8-5, all paychecks from my day job get put into this account. From this account, I pay all essential bills, and most of my transactions during the month happen from here. All work-related bonuses or extra income that is made outside of my business also get placed here. Once my income exceeds my target for the month, I transfer money to one of my savings accounts.

EMERGENCY SAVINGS

Once a month, after I have paid myself for my necessaryexpenses and have transferred money for other financial priorities, I put money into an emergency savings account. I am still working on hitting my target goal of at least six months of netincome, and this account will only be used for some these situations:

  • Lost job
  • Medical or dental emergency
  • Loss of primary transportation
  • Emergency travel expenses
  • Unexpected child costs

Read: How to Build an Emergency Fund (Step-by-Step Guide)

PERSONAL SAVINGS

I have a couple of expenses that I like to pay only twice a year to cut costs. My car insurance is one of thesecosts. I take the amount of my car insurance bill and divide it by 6. So if my car insurance is $600 every six months, I set aside $100 every paycheck into this account to make sure I have enough money to pay the bill once it comes due. I also use this account to save for other important goals such as a down payment on a home, paying off my car, and vacation expenses.

These are the four primary bank accounts that I use. I also have an “uh-oh” bank account like the one I mentioned above in this article, and I also have a “child” savings account where I put any money I have left over after all of my other accounts have been funded. Once the child savings account has hit $1000, I transfer $500 into my son's UTMA.

Having inconsistent income does not mean budgeting is impossible.Use the steps above to create a plan for your money.

Do you have daily paychecks? Tell me how you are managing your money in the comments below.

2K Shares

Have Irregular Income? Here's How to Budget for It. | The Budget Mom (2024)

FAQs

How do you budget with an irregular income? ›

How to Create a Budget When Your Income Fluctuates
  1. Define your essential monthly expenses. ...
  2. Track your spending meticulously. ...
  3. Estimate your lowest monthly income. ...
  4. Identify non-essential expenses. ...
  5. Consider building an emergency fund. ...
  6. Keep your budget accessible. ...
  7. Don't get discouraged — keep budgeting! ...
  8. Keep your cash safe.

What are the guidelines for budgeting with an irregular income? ›

How to budget when you have an irregular income
  • Establish a baseline monthly income. This is your “I can count on earning this much no matter what” income. ...
  • Make a list of required monthly expenses. ...
  • Pinpoint other monthly expenses. ...
  • Use your baseline income. ...
  • Include additional earnings. ...
  • Create a buffer account for low months.

How do you pay yourself a salary with an irregular income? ›

Pay Yourself a Salary

Pick a specific day each month and deposit a set amount from your business account into your personal checking account to cover your monthly expenses and discretionary spending. (You should pay for all personal and non-business-related expenses out of your personal checking account.)

How do you budget for irregular bills? ›

Here are five simple ways to plan for one-off expenses.
  1. Make a List of Irregular Expenses. It isn't possible to plan for every expense, but taking note of irregular bills can go a long way. ...
  2. Use Sinking Funds. ...
  3. Build a Budget Buffer. ...
  4. Don't Forget About Your Emergency Fund. ...
  5. Reduce Your Monthly Expenses.
Mar 18, 2024

How to budget when you have no income? ›

Budgeting When You're Broke
  1. Avoid Immediate Disasters. ...
  2. Review Credit Card Payments and Due Dates. ...
  3. Prioritizing Bills. ...
  4. Ignore the 10% Savings Rule, For Now. ...
  5. Review Your Past Month's Spending. ...
  6. Negotiate Credit Card Interest Rates. ...
  7. Eliminate Unnecessary Expenses. ...
  8. Journal New Budget for One Month.

What are examples of irregular income? ›

It could be freelance work, contract jobs, sales commissions, or even income from a side hustle. The key characteristic is that it's not reliable or consistent. One month, you might rake in the big bucks, and the next, you're barely scraping by. Freelancers, for example, are no strangers to irregular income.

What are the three steps to budgeting with an irregular income? ›

These steps will help you navigate the sea of irregular income.
  • Figure out what your baseline monthly expenses are. ...
  • Calculate the monthly average of your discretionary spending. ...
  • Plan to save and build an emergency fund. ...
  • Determine your average income. ...
  • Save the excess. ...
  • Try a zero-sum budget.

What is considered irregular income? ›

So, maybe you've got an irregular income—meaning you don't make the same amount of money every paycheck. If that's you, you aren't alone. Plenty of people work hourly or commission-based jobs or have side gigs that change up their income every month. But you can—and should—budget every month, irregular income or not.

What is an example of an irregular income job? ›

It arises from sources like freelance work, self-employment, commissions, seasonal jobs, or occasional gigs, making budgeting more challenging. Managing irregular income demands careful planning, prioritization of expenses, and the creation of an emergency fund for financial stability during lean periods.

What is the 50 30 20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

How to budget $5000 a month? ›

Consider an individual who takes home $5,000 a month. Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000.

What is true about budgeting with an irregular income? ›

To calculate your income when it is irregular, you need to first determine the amount that would be an average monthly paycheck. Your budgeting strategy would then be to save income from the months when you earn more than the average so you have funds to draw from for the months when income is below average.

How to get out of debt on irregular income? ›

These steps could help you tackle debt, regardless of how much you earn.
  1. Step 1: Stop taking on new debt. ...
  2. Step 2: Determine how much you owe. ...
  3. Step 3: Create a budget. ...
  4. Step 4: Pay off the smallest debts first. ...
  5. Step 5: Start tackling larger debts. ...
  6. Step 6: Look for ways to earn extra money. ...
  7. Step 7: Boost your credit scores.
Dec 5, 2023

What are 6 common budget mistakes you can t afford to make? ›

Failure to Adjust the Budget: A static budget may become outdated as your financial situation evolves. Life events such as job changes, salary increases, or unexpected expenses can impact your financial landscape. Regularly review and adjust your budget to reflect changes in income, expenses, and financial goals.

What is the best way to plan for known but irregular expenses? ›

Include Irregular Expenses in Your Budget

Once you have your list of these periodic expenses, you can add them to your monthly budget plan. Add one line item for the expense to your budget, and divide the yearly cost by 12 to get the monthly amount. This way, you can start thinking of it as a monthly expense.

How to budget with different pay periods? ›

To implement this approach, start by creating a list of all your monthly bills and when they are due, and divide them up based on the two paychecks you receive each month. Then, calculate how much you'll need to pay for each set of bills during each half of eh month.

How do you manage unstable income? ›

Here are some smart ways to ensure you have enough to pay your bills, minimize debt and build savings despite having a fluctuating income.
  1. Account for all your expenses. ...
  2. Be realistic about your earning potential. ...
  3. Keep cash reserves for lean months and surprise bills. ...
  4. Be systematic in how you manage paydays.
Feb 4, 2022

Top Articles
Latest Posts
Article information

Author: Gov. Deandrea McKenzie

Last Updated:

Views: 6522

Rating: 4.6 / 5 (66 voted)

Reviews: 89% of readers found this page helpful

Author information

Name: Gov. Deandrea McKenzie

Birthday: 2001-01-17

Address: Suite 769 2454 Marsha Coves, Debbieton, MS 95002

Phone: +813077629322

Job: Real-Estate Executive

Hobby: Archery, Metal detecting, Kitesurfing, Genealogy, Kitesurfing, Calligraphy, Roller skating

Introduction: My name is Gov. Deandrea McKenzie, I am a spotless, clean, glamorous, sparkling, adventurous, nice, brainy person who loves writing and wants to share my knowledge and understanding with you.