If you don’t get paid the same amount every two weeks, you’re in good company. At least a third of all Americans have an irregular income. More and more people are earning a flexible income whether they’re working remotely, side hustling, earning a commission, or simply getting paid twice a month.
When you think about it, even if you get paid on the 1st and 15th of every month, your income may fluctuate due to the length of the month.
Not having a clear idea of how much you’re going to make in a given month can make it harder to budget. Budgeting with an irregular income is not impossible, but you do have to do a few things differently. Here are some easy tips to help.
Start With the Basics
Sure, you’re not sure how much you might earn in a given month. But can you rest assured knowing that you’ll earn something? If the answer is yes, then work with what you have and start by covering the basics.
Every family should have two budgets:
- Your main budget: This includes all your variable and fixed expenses including extras like dining out, memberships, and extra-curriculars for the kids
- Your bare-bones budget: This includes only the expenses that are absolutely necessary to your survival. For example, your rent or mortgage, utilities, groceries, and transportation.
By starting with a bare-bones budget, you can easily lower your expense by cutting out all unnecessary spending. Suddenly, your $4,500 monthly budget gets dwindled down to only $2,000.
Your bare bones budget may not be exciting to live on, but it’s easier to work with when you have an irregular income. Once you earn at least enough to cover your basic expenses, then you can start to add back in some of your other expenses and cover those costs with any additional income you earn.
Keep Living Expenses Reasonable
This is a tip I’d recommend for anyone even if you don’t have an irregular income. Your budget is a spending plan that outlines what you’ll do with your money. The issue that most people encounter is that they try to spend more than their budget allows.
If you earn $50,000 per year but spend $60,000, you’ll be $10,000 in debt. This is why it’s so important to keep your living expenses reasonable and spend less than you earn.
You can still do this even if your income is up and down sometimes. The key is to prioritize your expenses. Make a list of what you are willing to cut and what you aren’t willing to cut. Talk to your spouse and make compromises. Here’s a list I came up with.
Things I’m willing to cut and spend less on:
- Housing – we live in a 1,300 sq ft house and make the best of the space limitations
- Cars – my husband and I both drive older paid off cars
- Food – we cook most of our food at home
- Family entertainment – I’m a big fan of free family fun as well as using coupons and offers to help us save on some of the activities we do
- Clothes – We buy a lot of used clothes and shop during sale seasons
- Car insurance – I’m not loyal to one particular car insurance company and we shop around often
Things I’m willing to spend more and splurge on:
- Educational materials for my son
- Traveling and family vacations – We set a budget and save where we can, but I could never give up traveling altogether just to save money
- Dining out at least once or twice a month
- Making healthier food choices
- Health insurance
Take time to write your lists and focus on lower the expenses that are not high on your priority list so you can keep your living expenses reasonable.
Track Your Income
This is a wise tip for anyone who has an irregular income. It’s important to still track what you’re making even when you don’t know what to expect because this can help you with your plans for future spending.
As you track your income month-to-month, you may notice trends. Maybe your job has a slow season or you often experience higher income months during the spring. Use this information to your advantage and plan your budget around your income.
Maybe you can afford to save more during a certain time of the year or pay off more debt. Or, perhaps you know that your income is smaller during the summer months so you tighten your budget a little more to accommodate this.
Create a Checking Account Buffer
As someone who has been earning an irregular income for several years now, another I like to do is establish a checking account buffer.
What this looks like is around $500 that just sits in my checking account to serve as a buffer if I go over my expenses. If I have a lower income month, I know I have an extra $500 in my account to budget with and I can replenish this amount during a higher income month in the future.
Another reason why I like having a checking account buffer is because life is unexpected. I don’t want to be stressed out if there’s an extra small expense added for that month or I go over a bit while grocery shopping.
If you’re going to use a checking account buffer to help you budget better with an irregular income, the key is to be disciplined. Don’t view the extra money in your checking account as spending money to splurge with. Instead, rely on it only when an important expense comes up and your budget is a little tight.
Pay Yourself First No Matter What
It’s always important to save, but when you have an irregular income it’s crucial. The best way to make sure you’re saving more and building your emergency fund is to pay yourself first.
Determine how much you want to save each month and transfer that money directly to your savings account whenever you get paid. Then, pay the remainder of the expenses for the month afterward.
It sounds easier said than done, but paying yourself first is an important habit that requires consistency. Even if you’re only saving $10 or $20, stick with the habit of saving first. Eventually, your balance will grow and you’ll have a nice chunk of money to fall back on if you need to supplement your income one month.
Summary: Budgeting With an Irregular Income
Remember, a good and effective budget is flexible. So there’s nothing wrong with having an irregular income. You can just adjust your budget and commit to paying yourself first. Prioritize your expenses and set some money aside during the months when you have a higher income with money left over.