How to Budget on an Irregular Income

Wondering how to budget on an irregular income, or if it’s even possible? Let me tell you right now: it is. Find out how exactly how you can keep a budget when you don’t know what your income will be!

Creating a budget can be challenging when your income isn’t guaranteed every month and the most accurate you can get is knowing that you’ll have ‘‘some money’’. Nowadays, many businesses offer an irregular salary depending on different things, or if you’re self-employed it might be hard knowing how much money you’ll make every month, and that’s why this post is for you. 

Below you’ll find the best guide on how to budget on an irregular income. There are some different approaches that you can consider, so hopefully you’ll find a method that works for your particular situation. Let’s get to them! 

Method 1: Make Use of Apps

Since the smartphone is typically never far away from our hands, we may as well try our best to make our screen time productive and useful. There are some great budgeting apps that you can use through both your smartphone and your laptop, such as Everydollar, that will help you budget for irregular income.

On this app, you can track exactly where all your money is going. As the name Everydollar suggests, it suggests that you take your base budget and allocate all the money from that total to your budget plan. Once the plan is done, you then input your expenses into the monthly budget as you go along, and it displays how much you have left within your planned budget for each area of expenditure. It’s one of the best ways to budget when your income varies.

Apps like this are useful because they provide you with a really clear picture on where your money is going, and you can use the data from that to assist in creating a realistic average budget that works for just about any month regardless of your actual income. The data would also help with some of the other methods in this list.

Method 2: Use a Low, Conservative Estimate Based on the Recent Past

For this method, you might combine it with data from method 1, but it will also work fine if you are not using a budgeting app. When you’re looking at how to budget with a variable income, it may feel impossible to make a plan, but what is required is to look at the full range of incomes that you’ve received in the recent past and try to find a conservative estimate. 

If you take at least a period from 6 months to a year or so and look at the income you made in that time month by month, you should be able to find an average. The pure average isn’t the most useful, because there will be as many months where you earn below average as above it. What some experts suggest, therefore, is to look at all your months and take the lowest as an estimate. Obviously, this only works within reason. If your income was $10 in one month, that’s not useful.

What this gives you is a safe, conservative average to work from, and if you can fit your main expenses into that minimum amount, then everything on top of that is a bonus.

Method 3: Ring-fencing

Using your estimate from method 2, or perhaps a different figure brought about by an alternative method, you can start to identify the most crucial parts of your budget: rent, utility bills, essential groceries, debt repayments, etc. What you can then do is ring-fence the money in your budget for these things, safeguarding it and guaranteeing that you can at least meet your minimum requirements each month.

It’s not such a glamorous method of budgeting, but it’s one of the most effective ways to budget with an irregular income and it protects you from falling into further financial difficulties. When the worst you have to expect is a little discomfort or lack of luxuries, you can count yourself quite lucky.

Remember to use a realistic and conservative estimate for the budget as the baseline for ring-fencing. If you use your high-end estimate or average, you will only find yourself encountering shortfalls in most months.

As an addition to this method, next to your “ring-fenced” list you can create a second list of “desires” that you’d like to spend money on. These could include luxuries, social life expenses like dining out, vacation money and so on. Put them in order of importance or desire, and then if and when you go over your predicted baseline, you can start allocating additional money to those areas.

Method 4: Build an Emergency Fund

Another good way to budget with inconsistent income is to allocate a percentage of whatever you make every month into an emergency fund, or you might call it something less dramatic-sounding like a “rainy day” fund. 

For instance, you could take 10 percent of your income regardless of the amount and allocate it to such a fund, which can be called upon when income has fallen below average to make up the financial gaps. It’s a sound plan and when done during “good times” will ensure that when the bad times emerge — and often they do, beyond our control — we are prepared.

Another advantage to this method is that it is not dependent on specific amounts of money being earned every month, but rather allocates a proportion of whatever that income number is. This allows you to stick to the plan and set at least something aside each month.

The main downside to this plan is that it takes some months to build up and there’s no guarantee that your fund will be sufficient when the “bad times” or another emergency presents itself; it’s just one of the effects of irregular income.

Method 5: Reduce Expenses and/or Boost Income

Finally, you should do everything you can to widen the margins of your budget. This requires you to decrease your outgoings and/or give your income a boost. While doing both is the most ideal situation, getting at least one done will improve your situation and give you more space to make a working budget.

For expense reduction, cut back on luxuries. One of the best ways to save money is to cut down on “vices” such as drinking in bars and smoking. Just cutting these in half can make a huge difference. If you’re not a smoker or drinker, then purchasing generic store brands, cooking at home, preparing large meals that last for a few days and other great methods are effective in reducing your spending.

For added income, the best thing to do is find additional work that you can do freelance, and flexibly whenever you have time. Things like freelance writing and editing on platforms like Fiverr are good. You could also be a transcriptionist, virtual assistant or an online language tutor. If you are handy with crafts, you could create things to sell on Etsy, or if you have a blog that others like to read, you could get into affiliate marketing. There are many possibilities.

The key to budgeting when your income is irregular is to keep calm and steady, always use conservative low-end estimates, maximize the margins of your income and outgoings, and don’t forget about technological tools at your disposal to help make the process more methodical and precise. Where you think your money goes and where it actually goes can be a very different story indeed.

Do these things and you should find yourself with a working budget when income is irregular. Hopefully, sometime soon it will become more regular and things will get easier to predict and plan for.