How to Budget on an Irregular Income
You might think a monthly budget only works for people with a predictable income. But a budget allows you to tell your money where to go instead of wondering where it went—and that applies to people who live on an irregular income, too!
Why you should budget on an irregular income
Budgeting is particularly important if you don’t know what number you’re going to see on your next paycheck. Whether your full-time job is commission-based or a little unpredictable—or if you’re a budding entrepreneur with a growing side gig—a budget will show you exactly where you are in your financial journey, and help you get where you want to be.
If you know where you stand with your money, you have a greater chance of financial success. You can plan for emergencies, pay off debt, and sleep better at night knowing that you’re in control of your money—rather than your money being in control of you.
How to budget on an irregular income
This step-by-step guide will show you exactly how to create and work a budget if you’re living on an irregular income. And don’t worry—it isn’t as intimidating as it sounds.
1. Start with your lowest monthly estimate.
It’s easier to start with your lowest monthly income than to start with an average. If you budget for the smallest amount, you can always go up from there! Check out your paystubs from the last year and find the lowest one in the bunch. If this is your first time working on commission or living on an irregular income, estimate what your lowest month will look like.
2. Create your budget based on that number.
Take your lowest monthly income and use it to create your budget. Remember: You want to start with the lowest number because it’s easier to add money in the budget than deduct it.
Now prioritize your categories, starting with your four essentials—also known as your basic necessities:
- Food. Begin with your basic food needs, like weekly grocery trips. We’ll add the extras—like restaurants and coffee shops—later!
- Shelter. This includes your rent or mortgage payment, as well as any cost associated with living in your home (utilities, taxes and insurance).
- Clothing. Remember, we’re starting with basics. Focus on what you need, not the shopping spree you’ve always wanted. That comes later!
- Transportation. This can include your car payment, how much you spend on gas, and what you need to maintain your vehicle.
Once you’ve listed your four essentials, list the rest of your expenses in order of most important to least important. Make sure to include giving and savings after the essentials—and don’t forget to include insurance. If you accidentally list some of your expenses out of order, don’t worry. You can rearrange your budget categories when you’re done.
And remember—just because you have an irregular income doesn’t mean you can’t have fun! But when you’re setting up your initial budget, cover your necessities first before diving into all the extra stuff. Once you have your basics covered, you can add in things like restaurants, coffee, entertainment, and other fun activities!
3. Adjust over the course of the month.
Now that you’ve created a budget for your lowest monthly income, take it for a test drive. You might realize halfway through the month that you’re going to make more than you originally thought.
That’s great news! But before you start spending that extra cash, make sure you add it into your budget. If you set your lowest monthly income to $5,000 but you made $5,500, simply adjust the income line in your EveryDollar budget.
Now you just need to decide where to apply that extra money—and that’s a great problem to have! You can go back to the priorities you listed, or add new ones. It’s up to you!
4. Create a Hill and Valley fund.
There are hills and valleys in every business. Sometimes you bring in more than average, and that’s great. But sometimes you experience a slow season, and you need to pull from savings to make ends meet until business picks up again.
That’s where the Hill and Valley fund comes in.
The Hill and Valley fund prevents you from dipping into your emergency fund when your paycheck is smaller than you thought it would be. It helps you pay your bills and keep food on the table when your monthly income is less than your monthly expenses.
It’s easy to get started. Remember the above example where we talked about adjusting your income for the better when you have a good month? When that happens, allocate some of your extra earnings to the Hill and Valley fund. Easy as pie.
Over time, the Hill and Valley fund will grow—just like an emergency fund. It may be tempting, but don’t skip this step. It will provide a nice buffer between you and those hard months when business slows down or you need to work less for a season!
5. Copy your planned amount to next month.
Once you have a list of monthly expenses and your Hill and Valley fund, you can use this budget as a template for the next month. Let EveryDollar do the work for you. It will copy the previous month’s budget into the new month, and you can make any necessary adjustments from there without creating a new budget from scratch.
Tips for budgeting on an irregular income
Create a Miscellaneous category.
We all have unexpected expenses pop up that we either didn’t expect or forgot to plan for. That’s where the Miscellaneous category comes in handy. Allocate funds to a Miscellaneous category so you have a safety net in case an expense comes up that you weren’t anticipating.
Give yourself some grace.
It won’t be picture-perfect the first time. You may forget some things or not budget enough for groceries. But don’t stress—and don’t give up! It takes about three months to get into a budgeting rhythm. Keep your eyes on the prize and learn from your mistakes as you go.
It might seem tricky at first, but stick to it. Just because your income is unpredictable doesn’t mean your budget needs to be unpredictable too!
Don’t have an EveryDollar budget yet? No problem. It’s free to create your budget and takes less than 10 minutes.