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7 tips to budget with an irregular income

Bankrate logo Bankrate 1/26/2022 David McMillin
Designer retouching photo on his computer © DragonImages/Getty Images Designer retouching photo on his computer

If you’re a freelance worker, an independent contractor or an hourly employee, your irregular schedule delivers irregular income. You might not know how much you'll make each month, but one thing is certain: You need to create a budget to make sure you're current with all your bills while managing to save some money, too.

Following a spending and saving plan when you don't know exactly what you'll earn isn't easy, but it can be done. Get started on budgeting with an irregular income with these seven tips.

1. Add up your fixed expenses

Your income may change from week to week and month to month, but some of the items you have to pay for are set in stone. The first step to budgeting with irregular income is having a clear view of your fixed expenses including your rent or mortgage bill, car payment, insurance coverage (health care, auto and any other policies you have in place) and loans.

In addition to these specific recurring payment amounts, there are other items you can't afford to miss, either - namely eating food and getting around. Look at the past three months of spending to get a clear view of your average weekly grocery bills and the cost of driving or using public transit. These items are equally essential, and they can help provide a good starting point for understanding how much money you absolutely have to earn every month.

2. Use those expenses to calculate your emergency fund

Now, take those fixed expenses, and multiply them by somewhere between nine and 12. That figure represents how much you need in an emergency fund. While saving that much money can sound impossible if you're just starting out, having an irregular income can leave you even more susceptible to a time with no income at all - if a big freelance client decides to halt a project or an employer cuts hours due to production issues, for example. There are other major life scenarios - a huge out-of-pocket medical bill or a broken furnace - that can pop up, too. An emergency fund is a critical piece of your budgeting success: When an emergency happens, you'll be able to deal with it without derailing your regular budget or turning to high-interest credit cards.

3. Use a zero-based budgeting plan

One of the best strategies for living on an irregular income is zero-based budgeting. The goal of this approach matches the name: Get your budget to zero during each budgeting period.

For example, let's say you make $3,185 this month. With zero-based budgeting, you need to think about where all of that money goes down to the last dollar. You'll divide it among your fixed expenses, your nice-to-have items like going out to eat or shopping for new clothes and your different saving goals. Zero-based budgeting forces you to closely scrutinize your spending and recognize if it's getting out of control.


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4. Make saving a default setting

While zero-based budgeting requires manual work to review every expense, there is one portion of budgeting with irregular income that should be automatic: transferring a portion of your paycheck to a dedicated savings account. This doesn't have to be a large sum. In fact, if you're just starting out on a path without a steady income, you'll want to start small. Automated deposits will help you establish a behavioral routine. When you're earning more, you can increase that automatic amount.

5. Know when you're going to come up short

Budgeting with an irregular income requires you to look further on the horizon for warning signs that you won't have enough cash coming into your account in the next few weeks. Rather than waiting and hoping that work will pick up soon, identify ways to get ahead of the shortfall. Can you raise your hand to pick up more hours? Are you waiting on a client to send you a past due payment? Make sure you're proactively thinking about opportunities to get some quick additional cash.

It's not just about earning more, either. Think about ways to spend less such as substituting your favorite brands of toiletries, groceries and other essentials with store brand options that cost less. When your budget is stretched thin, every dollar counts.

6. Don't overspend when you feel like you're over-earning

In addition to planning for the worst of times when you're struggling to make enough cash, you also need to be prepared for the best of times. If a large commission check arrives or a month of working overtime pays off, think about smart ways to put the unexpected earning boost to work.

Sure, you can celebrate your hard work with something fun - perhaps a dinner out at your favorite restaurant or putting some of the money toward a vacation fund - but ask yourself questions about how to put most of that money to work. Can you put it toward your emergency fund? Have you opened a retirement account to invest for the future? Make the most of big paydays by thinking about how that extra money can contribute to your long-term financial well-being.

7. Make sure you're prepared for irregular expenses, too

With an irregular income, you still have to pay a regular bill to the government. While taxes are due on an annual basis, don't forget to include your taxes in your monthly budget. You can set aside an amount each month based on your tax bracket.

If you don't want to do the math, you might be able to open a bank account that will do it for you. Some banking services such as indi have been specifically designed for workers with irregular incomes to help calculate estimated taxes.

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