How to Budget With an Irregular Income

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Budgeting with an inconsistent income isn’t much more complicated than on a fixed income, and can be just as easy to track month to month. Learn how to budget on an irregular income.

Does your budget vary from paycheck to paycheck? Do you want to budget, but aren’t sure how to budget with an irregular income?

Don’t worry, there are plenty of people that have fluctuating incomes. Budgeting with an inconsistent income isn’t much more complicated than on a fixed income, and can be just as easy to track month to month. To learn how to budget on an irregular income, please read on.

Table of Contents

Convert Your Variable Income to An Equivalent Fixed Income

To simplify your budget, the first thing we’re going to do is turn your variable income into a fixed equivalent.

Setting a Conservative Baseline

A conservative approach is to look at last year’s pay stubs and find the month where you made the least income.

If you are just starting out and don’t have a history, you’re going to have to estimate what the least amount is that you anticipate making each month. Err on the side of caution when estimating your income and assigning it to expenses. It’s much better to have too much than not enough.

Create a Budget Based on That Amount

Now that you have converted the variable income to a baseline fixed equivalent, you can create a simple zero-based budget. Since you already have the income, you’ll need to start listing out your expense categories, and assigning priorities.

To start, list out all of your needs. Your needs should include:

Food
Water
Shelter
Clothing
Transportation
Heat/Cool (Gas/Electricity)
Anything else you require to survive (i.e. medications, etc.)

Once you’ve addressed the essentials (those items you need to survive or continue making money), list out your other expenses from most important to least important. When listing them out, don’t forget categories like giving, saving, retirement, etc.

Next, utilizing spending from previous months as an estimate for this month’s cost, tell each dollar where to go. Assign income to each expense starting with the needs and most important categories first, continuing until there is nothing left to assign.

If you don’t have enough to cover all of your expenses, you’ll have to decide which expenses to cut from your list.

For example, if you create a list of expenses that includes gym, fast food, yoga classes, and pilates; you may decide that the gym and yoga classes are important to you, but the fast food and pilates expense items should be removed or set to $0.00 on the budget.

If you have more than your expenses, you can easily assign more to saving, retirement, and giving.

Adjust Throughout the Month

If you make it halfway through the month and are bringing in less income than you anticipated, you made need to reevaluate for the month and cut some less important expenses .

Conversely, if you are on track to make more; that’s great! Starting off you may want to keep this extra money off to the side to create a buffer account.

Create a Buffer to Even Out the Variable Income

A buffer account will be used to even out the peaks and values in your income from month to month. For example, if you planned for $4,000, but actually made $5,000, you may want to save that extra $1,000 for when you have a month where you make $3,000 or 2 months where you make $3,500.

The amount you save will depend on the size of the peaks and values and will be based on your previous year’s income from month to month. You’ll want enough in the account to cover your largest valley (i.e. where your actual income is less than budgeted).

Adjust Your Budget as Needed

Make sure to adjust your monthly budget as changes occur in your income or expenses.

If you end up getting a raise to a few more dollars an hour and it’s a permanent change, after a few months of tracking the increased income, it should be safe to update the baseline income to this new amount.

If you end up lowering expenses or dropping expenses, make sure to update your expense portion of the budget. For example, if you end up refinancing your house and your monthly payment has changed, make sure to adjust the expense to the new amount, don’t just keep it around as another buffer account.