How to Budget With an Irregular Income

When I first started budgeting, I had a regular full-time job and knew exactly how much would be on each paycheck. I loved the sense of control that came with it. I knew exactly how much I made and how much I spent.

But within a few years, things looked very different. I had started freelancing, which brought in an inconsistent income. Then I met and married my current husband, who had an irregular income that relied heavily on tips.

Not long after that, I quit my job to run my business full-time. Now my income is more irregular than ever, and there are no guarantees like there were in my government job.

Over the past few years, I’ve learned how much more challenging it can be to budget when you have an irregular income.

If you’re dealing with income that doesn’t look the same from one month to the next, I know these tips will help you too.

Determine your bare minimum budget

The first step to budgeting with an irregular income is to figure out your bare minimum budget. In other words, how much money do you actually need to live on each month?

This number should include necessary fixed expenses such as rent, a car payment, student loans, insurance, utilities, and groceries.

Your bare minimum budget shouldn’t include discretionary spending, such as excessive eating out, travel, or entertainment.

What good is knowing this number?

First, it’ll give you an idea as to whether you actually make enough money. If your irregular income doesn’t allow you to pay all of your bills, it’s time to figure out how to make more money (or change your spending habits).

Your bare minimum budget also gives you an idea of how much you should have in savings. In other words, how much do you need to have set aside in case you stop earning income?

Finally, your bare minimum budget tells you when (and how much) you can spend on discretionary expenses. If you have $2,000 per month in expenses and make $4,000 per month, you know you can probably afford to spend some money on fun.

Give yourself a regular paycheck

I like the idea of taking away some of the irregularity of an inconsistent income by giving yourself a steady paycheck.

So how does that actually work?

Let’s say you are a freelancer who makes anywhere between $3,000 and $6,000 per month after taxes, depending on the season. That money goes into your business checking account. Your monthly expenses are about $3,000.

Rather than transferring all of the money from your business checking to your personal checking each month, give yourself a monthly paycheck of $3,000.

By doing this, you are no longer budgeting on an irregular income. You know exactly how much will be hitting your bank accounts each month. You’re also able to start building a bit of a buffer in the months you make more than $3,000.

If you have a variable income but don’t have a separate account for a business, open a checking or savings account to deposit your income into that is separate from the one you use to pay your bills.

If you aren’t sure how much to pay yourself each month, aim for your average monthly income. That way, the good months will be enough to supplement the months you make less.

Move extra money into a savings account

So if you’re making between $3,000 and $6,000 per month and only paying yourself $3,000 per month, you’re going to have some money left over.

In the months when you make more than $3,000, you can set that money aside in a separate savings account. Then, if there’s ever a month where you don’t make $3,000, you can supplement your income to still give yourself that $3,000 paycheck.

Another nice thing about this savings strategy is that once you have enough set aside that you feel comfortable you’ll be able to cover any low-income months, you can start using that money for other things! You can put it toward debt or use it to reach your other savings goals.

Pro tip: You can also add to this buffer with any cash windfalls you get, such as tax refunds, Christmas or birthday gifts, and other random influxes of cash.

Live on last month’s income

One of the best pieces of advice I can give to anyone with a fluctuating income is to live on your income from the previous month. Actually, this is great advice for anyone, regardless of if you have a regular income or not!

So how does this actually work?

Most people living on the income they earn each month. So the paychecks they get in September are what they use to pay September’s bills.

But for someone who doesn’t know exactly how much they’ll earn this month, this type of budgeting is a bit of a gamble. After all, you may not know how much you’ll earn until the end of the month and may not have the income in time to pay for that month’s expenses.

Instead, I like to always budget one month ahead. So the money that goes into my bank account in September doesn’t get transferred to my personal checking as my “paycheck” until the next month.

That way, before October hits, I know exactly how much money I have available.

When necessary, dip into your savings account to supplement your income

One of the downsides of variable income is that in some months, your pay is a lot lower than in others. In the time I’ve been freelancing, I’ve learned that my income can vary drastically.

In a perfect world, I would make at least enough each month to cover my bare minimum budget. But just in case that doesn’t happen, I want to be prepared. During those months where your income is lower than normal, you can dip into your savings account (the one you funded with your excess income) to help pay your bills.

Have a large emergency fund

Separate from your buffer account, you should also have a hefty emergency fund. 3-6 months is a good size savings account, but I think closer to 9-12 months is ideal for someone who is self-employed and has an irregular i

That buffer account is to help pay the bills during any months when you earn less than normal. But the emergency fund is to help with any crazy expenses (like home repairs that cost thousands of dollars).

More importantly, your emergency fund is there to replace your income in the event that you lose your job.

Keep ideas on-hand to increase your income

One thing I’ve learned since becoming self-employed is that I have to be prepared to increase my income at any time.

I never know when I might lose a freelance client or when a client might start sending me less work. And if that happens, I have to be prepared to immediately replace that income.

The same goes for other types of workers with irregular income. In 2020, the food service industry took a huge hit. Even as restaurants started to re-open, fewer people were going out to eat right away. This meant fewer tips for those employees.

That’s a situation in which you might want to have some ideas in your back pocket for increasing your income when things head south quickly.

Use a budgeting app to stay organized

Keeping track of your budget when you have an irregular income (or even when you don’t) can be a lot to manage. And especially when you’re just getting started, you might want to use an app to help you stay organized.

I think You Need a Budget (YNAB) is the absolute best budgeting app, especially for those who don’t bring in a consistent income. It’s specifically designed to help you get one month ahead on your budget so that you’re using last month’s income to pay your bills.

I actually use YNAB for both my business and my personal budget! First, I keep a separate business budget to track my business income and expenses. Taking my own advice, I budget a month or two ahead for my business expenses and set money aside for taxes.

Then, I pay myself a monthly paycheck, which I use to budget ahead on my bills.

Using YNAB has gotten me so into budgeting ahead that I actually try to budget ahead two months at a time rather than one. This single habit has made the cost of YNAB more than worth it!

Final Thoughts

Budgeting is stressful enough for most of us. And when you add on the extra layer of an irregular income, it can quickly seem like too much to handle.

After years of learning the ropes of budgeting with irregular income, I’ve streamlined my process and hope you find it useful for your own budget!

Erin Gobler