How to Budget When You Don’t Have a Fixed Income

I know we talk a lot about budgeting and how this is a very important step in your financial literacy journey. I’ve written reasons why we need a budget and how to build one over here. I also have a free budget template here
In my last post of budgeting, I assumed everyone had a fixed income and was recently reminded that those tips aren’t so helpful for people who do not have a fixed monthly income. A fixed monthly income means you make the same amount of money on your paycheck every month. Irregular income means you probably don’t make the same amount of money every paycheck.   

Budgeting When You Don’t Have a Fixed Income

  • Find out what your average income is or your lowest monthly income: If you are a freelancer or get paid based on how many hours you work, to find your average monthly income, find the average income you have made in a particular period of time (this could be over a year, quarter or six months). Another approach to finding your monthly income could be to find the lowest income you have made and work with that while building your budget. Your average or lowest income should be used as your income in creating your budget. 
  • Figure out what your fixed expenses are: These would include items such as your mortgage, rent, car payment, phone bills etc. They are typically expenses that are constant and have a fixed amount every month. These expenses should be your priority and you want to make sure you have enough money to cover them every month.
  • Find out what your other monthly expenses: Unlike fixed expenses, you have control over these expenses and can be flexible when it comes to how much you want to spend on expenses that fall under this category. Examples would be groceries, gas, transportation costs etc. Note: How much you spend on these could fluctuate depending on how much you earn in a month. 

Tips on Budgeting when you have irregular income 

  • Plan Plan and Plan: When your income is not fixed, there are months you would make significantly more or less depending on how the month goes or when you actually receive payment for the work provided. Make sure you have a plan to pay for bills that may come up such as your taxes, a course you take or a software you need to purchase. For example, if you know your tax bill is due in April, you can start saving a fraction of what you think you might pay now so you are able to cover that bill when the time comes. 
  • Don’t overspend in higher income months: The fact that you made a lot of money this month isn’t a good enough excuse to overspend. You might need to save for months when you are not sure what you might get paid. The fact that you made $10k this month doesn’t mean you will always make $10k every month. The reality is that you may not and you need to save for three-figures income months, should they arise. 
  • Have an emergency fund and actively fund it: Your emergency fund could help to cover your basic expenses for a few months should you not get paid for an extended period of time and could help should you have a financial emergency. 
  • Monitor your income and expenses closely: Unlike budgeting when you have a fixed income, you would need to keep an extra eye on your irregular income to ensure you have enough money to cover your basic expenses and other expenses as they arrive.
  • Save a percentage of your income consistently: Set out a percentage of your income you would like to save monthly. Whenever you can, you might want to put down more money towards your savings, investments or debt repayment.
  • If you can, opt for annual or lump sum bills: It might be worth considering making lump sum payments during high income months. This helps reduce the stress or worry of such bills during low income months. For example, you can renew your annual subscriptions on an annual basis (this is usually a cheaper option too) so you don’t have to worry about that bill for a while.
  • Adjust your budget as you need to. 
  • Think ahead when it comes to your budget: If you can, plan a month or two ahead especially in high income months as this reduces the financial pressure that might occur during low income months. 

In a nutshell, if you have irregular income you need to make sure you PLAN ahead, MONITOR your income and expenses, and ADJUST your budget when it comes to budgeting your finances. 

Hope this helps. Please share with me any other tips you have found that have helped you navigate your budget when you had irregular income.

Talk Soon,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s