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How to Manage a Monthly Budget on an Irregular Income

October 17, 2019 by Emma Gordon

What makes a monthly budget? If you pare it down to its two main components, you’re left with monthly expenses and monthly earnings.

When you bring home a consistent paycheck on a regular schedule, punching your income into this plan may generally be pretty straightforward. You may not have to think about how much you’ll earn each month — it’s almost always the same.

But if you’re a digital nomad picking up freelance work or a salesperson who relies on commission, your income may not be as predictable. Living within your means may be more challenging when your income fluctuates from one month to the next.

Although it may be complicated to balance a budget on an irregular income, it may not be impossible as long as the “irregular income budget” is well-organized. It’s designed to help manage fluctuating income, so you can control your spending and boost savings — no matter what your pay schedule may look like.

Irregular Income Definition

Earning an irregular income simply means you don’t earn a steady paycheck. You may go from earning a lot of money one month to earning relatively less the next.

You may earn an irregular income if:

  • You can’t predict when your next payday will be; and/or
  • You get paid on a regular schedule, but your earnings fluctuate depending on hours, tips, or commissions

Some examples of such positions may be:

  • Contract workers
  • Freelancers
  • Seasonal employees

On the contrary, salaried positions may allow people to predict their paydays — whether it arrives weekly, biweekly, or according to some other fixed schedule. They’re also likely to earn the same amount of money with each paycheck.

Why Irregular Income Planning is So Important

A budget is a fantastic financial tool no matter what your job is, but it’s especially helpful when you’re living on a fluctuating income.

Living on a variable income may mean that you can’t assume your next paycheck is a sure thing. With the uncertainty of the dates and amounts of your earning, it can be a challenge knowing whether you’ll earn enough to cover what you need.

A budget is a game plan that may bring stability to your finances. It may help you prioritize your expenses, so you don’t accidentally use up your cash on unnecessary things.

Irregular Income Budget Tip #1: Calculate Your Lowest Monthly Earnings

 If you don’t earn the same amount on a predictable schedule, the expenses you can afford may change each month.

To keep things simple, you might figure out your average monthly paycheck and apply it to your budget. But this leaves you working with an approximation of your earnings that may rarely reflect what you actually make.

Some months you may earn more than this number. Other months, you may earn much less.

Earning less than what you base your budget around may be a problem as it may make you think you have more money to spend than you actually do.

It’s easier on your budget if you start from your lowest possible earnings and work up from there.

This way, you won’t believe you have more money to spend than you do. If anything, you may bring in more cash than this low estimate, and it may be a lot easier to handle a surplus of cash than the opposite.

To set this minimum, go through all your earnings from the past year and find the paycheck with the lowest amount. This is your budget’s starting point. Any extra earnings on top of this minimum will be a pleasant (and a welcomed) surprise.

If you ever face a cash shortfall in an emergency and you have no other way to cover that expense, payday loans online may be the way you can handle your unexpected emergency bill or repair. But make sure you understand how these online loans work to make sure they’re the right fit for your finances.

Irregular Income Budget Tip #2: Make a Bare-Bones Spending Plan

Now that you know your lowest possible earnings, your next step is to figure out your lowest possible spending for the month.

This spending comprises the bare minimum expenses that you have no choice but to pay.

What does the bare minimum look like? For many people, a bare-bones spending plan strips your expenses down to the essentials, such as:

  • Housing costs (rent, mortgage, HOA payments)
  • Utilities (water, heat, electricity)
  • Groceries
  • Childcare
  • Transportation
  • Insurance payments
  • Basic toiletries

Don’t panic if your list looks different from the one above. Every budget is unique. It’s more important that you personalize your budget, so it fits your financial situation than it is to match a general guideline.

If you take out online loans to cover unexpected emergency expenses or if you need to repay any other forms of debt, then those payments should join your bare-bones spending plan. You should always be sure to make a point of setting aside cash for these online loans or other debt repayments, as this will help you to pay them on time and potentially avoid late fees or other consequences.

stack of coins in a vice on a sheet of paper showing numbers next to a black calculator

To find an accurate list of your needs, set aside some time to think about your expenses carefully. Your financial needs usually make up the basic things you need to live and work safely.

Grab a pen and paper, or start a note on your phone, and list your absolute, bare minimum monthly must-haves.

Once you have this list, add them up for a total. Make note of this number because it tells you two very important things. It is:

  1. The least amount of money you need to spend to get by and pay your bills.
  2. The baseline of what you need to earn.

Irregular Income Budget Tip #3: Don’t Forget About Irregular Expenses

Some of the necessities in our list above are fixed expenses which you may expect to pay at least once a month. They may tend to be the easiest to remember on account of how often you pay them.

What might be harder to keep track of are those expenses that don’t arrive on a consistent schedule. These irregular expenses may slip your mind until the day you need to pay them.

If you aren’t careful, their unexpected arrival can bust your budget.

To prevent that from happening, take some time to brainstorm what irregular expenses you may have left out of your list. Here are some examples to get your creative juices flowing:

  • Taxes
  • Auto maintenance
  • Household maintenance
  • Necessary back-to-school items
  • Occasional health and dental check-ups

Some of these may end up joining your bare-bones spending plan as necessary expenses, but others may fit into another category of spending altogether.

Irregular Income Budget Tip #4: List Your Discretionary Expenses

Sometimes, a spending plan may account for more than just the essentials. It may include discretionary expenses that make up everything else you typically buy in a month. It might include fun things like entertainment and hobbies.

For many people, discretionary expenses include the following things:

  • Takeout
  • Concert tickets
  • Subscriptions (streaming services, magazines, deliveries)
  • Cable
  • Haircuts
  • Unnecessary clothing and shoes
  • Cosmetics
  • Gym memberships

Like the list of financial needs, your financial wants may look totally different from the ones above. The only way to find out is by listing your discretionary expenses.

Off the top of your head, you may have a rough idea of how much money you spend on these. But your budget needs precise numbers. It might be helpful to go through some old bank account or credit card statements to see how much money you’ve spent in the past year on discretionary expenses.

Looking back on your finances this way may take some time, but it’s worth it! You may get a better understanding of your yearly spending habits, so you know what your extras look like.

It also gives you an opportunity to boost your savings.

Look out for bad spending habits that do nothing but waste your money. Now is the perfect time to prune these from your budget. If you’re feeling motivated to make a positive change to your spending, check in with our Guide to Saving Money for more ideas.

Irregular Income Budget Tip #5: Prioritize Your Monthly Expenses

If you’ve followed along with each of the previous tips, this is what you know so far:

  1. How much you’ll make, at minimum, each month
  2. The least amount of money you need to run your household
  3. A list of your wants that make up the rest of your spending

Does your lowest earning month cover what you need to run your household? If not, you may want to think about how you might increase your earnings to cover the basics.

man in blue gingham shirt bending writing in notebook with left hand at a desk next to an open laptop plan book and coffee mug

Even if it does, this information is still helpful. It may help shape your approach to paying bills with a variable income by showing you your priorities. 

After having put together your bare-bones spending plan and then listing out your discretionary expenses in the previous steps, it’s time to combine your fixed and variable expenses together into one list. Then shuffle them around until you have them in order from most important to least important.

Things like food, shelter, utilities, and debt repayment will make it to the top spots, while a gym membership, takeout, and concert tickets will fall to the bottom.

The order you choose will be the order you pay your expense. This means, when you receive a paycheck, you’ll pay the item at the top of the list first before moving down until you can’t cover any more.

Don’t worry if you don’t manage to cover everything with one paycheck. Make a note of the last expense you paid on your list when your paycheck runs out. This is where you’ll pick up if you get paid again in the same month. The further you go down the list, the less important these expenses are.

If you don’t get paid again, consider it a do-over once the month ends. Your movement down the list restarts at the beginning of a new month, and you’ll pay your expenses according to their ranking with whatever payments come in.

Irregular Income Budget Tip #6: How to Manage Going Under and Over Budget

When you earn a variable income, you may not restart a month without getting to the last item on your list. It’s also just as likely that you’ll be able to purchase everything on your list and have some money left over.

The nature of your job may mean that your income will ebb and flow. It may flow during a busy month when you earn much more than your minimum, making it easy to go through your entire list.

It may ebb when business dries up. This might mean you can only cover the essentials. A particularly low month could see you earning less than your minimum, making it hard to make ends meet.

As someone with variable income, you may have to think proactively about how you’ll pay for these lows. And the answer is in your highs.

When you experience a busy month, don’t spend all your earnings on extra fun stuff. While there’s no harm in spoiling yourself once in a while, it’s important you balance out your finances with some responsible saving and investing.

Make sure you reserve some of these extra earnings and put them in a short-term savings account. Eventually, the money you put here may add up. You can dip into this account the next time you run into a slow period.

hand holding folded American dollar bills in slot of white piggy bank in a blue background

Irregular Income Budget Tip #7: Take out Money for an Emergency Fund

The short-term savings account is different from an emergency fund. Your high and low account is there to smooth over possible discrepancies in your monthly earnings, so you can continue to pay for the expected, regular expenses in your budget.

An emergency fund is aptly named, as it’s for unexpected expenses that usually follow an emergency. It’s there to help you cover unplanned, yet unavoidable, household and auto repairs, medical expenses, and other emergency bills.

An emergency can happen at any time, and it’s hard to anticipate its cost. As a result, it’s good to air on the side of caution. The more you save, the more prepared you may be.

The average person may want to set aside three to six months’ worth of living expenses in their emergency fund. But when you’re dealing with variable income, you stand to benefit by squirreling away even more.

Several months worth of rent, utilities, and everything else may be a daunting goal, especially if you’re starting your fund from scratch.

To help you take action, here are some tips for your emergency fund:

  • Break your end goal into several, smaller goals that are easier to reach. In other words, figure out how and when you might be able to save up one month’s worth of expenses and work from there.
  • Don’t use it on non-emergencies, no matter how much you want to go on vacation or buy a new phone. Anytime you tap into this account for non-emergencies, you’re leaving yourself with less money when disaster strikes.
  • Set up automatic contributions to make sure you don’t forget to pay into this fund.
  • Be kind to yourself; remember that saving this much may take time, no matter how much 12 months of expenses is for you.

If your savings ever fall short of what you need in an emergency and you have no other way to cover that expense, check to see if you should contact a direct lender. To find out more about how a direct lender operates, click here for some simple online loan facts.

left hand holding black pen over open notebook covered in doodles next to leaves and a pink mug on a white table

Budgeting on a Variable Income is Possible!

Following a budget may be harder when you earn an irregular income. But don’t let that intimidate you from taking control of your finances. With some hard work and commitment to your plan, you may get a better handle on your money.

And who wouldn’t want that?  

If you’re ready to manage your cash flow better, remember what you learned here today. These irregular income planning tips will help you create your budget and stick with it.

But don’t worry if things go off course. These things take practice.

It might take some time until you’re used to of working with your lowest monthly earnings and bare-bones spending plan. Until then, if you have no other way to cover an unexpected emergency expense,  installment loans can be a big help.

To learn more about budgeting, take a look through our blog. We share simple ways to save more, so you can put more money into your emergency fund. Once you’re done there, check out these reviews from past clients to learn more about how we can help in an emergency with an online loan.


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