3 Ways to Create a Budget With an Irregular Income

Do you have an irregular income that makes it difficult to set a monthly budget that works?  You know you need a budget, but every time you sit down and try to set one up, you probably get discouraged because of your fluctuating income, right?  

I understand how difficult it can be to create a budget with an irregular income so I want to show you a very simple way to do it that will allow you to stop being frustrated and start working your way towards financial freedom.

Do You Struggle With an Irregular Income?

You are not alone. Irregular incomes are quite common.

In fact, over one-third of American households struggle with a volatile income across all income levels and all demographic groups.

Most people who work on commission or are in business for themselves have a fluctuating income. Maybe you are paid an hourly wage instead of a salary and don’t have set hours each week?

It is still possible for you to create a monthly budget and – more importantly – stick to it.

Getting Started Budgeting Your Variable Income

We had tried many times to budget with an irregular income, but each time it got tricky, and we would give up and slip right back into old habits.

It wasn’t until we made the life-changing decision to improve our finances and learn to live on a budget that truly worked for us – giving us back control of our money and our lives.

Learning how to budget with an irregular income doesn’t have to be complicated, but it does have to be strategic.

I want to share three different strategies to help you create a working budget that will allow you to take back control of your finances, regardless of your fluctuating income.

3 Options To Create an Irregular Income Budget

You might assume that since your income is different each month that a budget is not an option for you.  Options are good…Below are three different budgeting options. Choose the method that works best for your specific financial situation and get to work on building that budget because you are officially out of excuses, my friend.

1. Budget With Your Average Income

In order to create a budget with an irregular income, you need to determine your baseline. This is the base income you will use to build your budget around.

With the averaged income method, you will take the average of the last six months of income and use that number as your base income for the month.

If the last six months have been a little higher than normal and you have reason to believe the next few months may not be as good, extend the length of time you’re averaging to nine or even twelve months and use that number as your baseline.

Once you have your base income, then you know what you’re working with. Grab your free monthly budgeting worksheets below and fill in your expenses…

2. Budget Using Your Lowest Income

If the thought of using an “average salary” isn’t exactly making you feel all safe and secure, then perhaps using your lowest possible monthly income is a better option for you.

Personally, this would be my choice since I’m super slightly neurotic and don’t want to take the chance that I could run out of money at the end of the month (been there, done that, don’t care to go back).

Take the lowest income you’ve brought home in the last six months and use that as your baseline. This method ensures that you will have enough to cover your expenses, and more importantly, it’s great because anything extra you end up earning will feel like a bonus. Now that you have established your baseline, continue on creating your monthly budget.

3. Budget Using Last Month’s Income

The last method I want to suggest is to live on “rice and beans” (as Dave Ramsey would say) for a month or two until you save up enough money to bank a month’s worth of expenses.

This can be tough, especially if you’re currently getting out of debt by working your debt snowball; however, I think this method would be the most comforting and the stress-out-the-least-each-month (that’s the technical term) method because you are basically building your budget around the prior month’s income.

By using one of these three methods to determine your base income, you can be certain that you won’t over/under-budget or overextend yourself during the month and come up short, forcing you to either use credit or dip into your emergency fund.

What to Do if Your Irregular Income Doesn’t Cover All Expenses?

When creating your budget on an irregular income, if you have a month that might be short, you will have to make a few adjustments.

You will have to prioritize your expenses. This can be overwhelming, but just remember, once you’re out of debt there should be plenty of money to cover every expense, every month.

Number your expenses in order of priority.  #1 being the most important – absolutely must be paid that month.  These should include your basic needs: shelter, utilities, food, and transportation. So all essential expenses pertaining to those categories should be the first few numbers on your list.

Next, number the rest of your expenses accordingly.

Note: Now is the time to make good, honest choices. Changing your behavioral patterns and creating new habits is essential to success in budgeting.

When the money comes in, pay your expenses starting at #1 and go down the list until the money runs out! It’s as simple as that…whatever does not get paid must wait until you bring in more money.

Do not put the remaining expenses on a credit card. 

I want you to move forward, not back! Work harder next month to increase that income and pay right down the list again.

A Few More Tips

• Be sure to check (and update) your budget often. Pay raises, bonuses, new clients, etc., can all make a huge impact when you’re budgeting with a fluctuating income. Be sure to fill in the “actual” column each month-end. This will help you see where you may need to make some adjustments for the upcoming month.

• Try a budgeting app. While I do prefer a spreadsheet or an old-fashioned paper budget, there is something to be said for using a budgeting app like Every Dollar (it’s free). It’s very convenient to be able to check your budget quickly on the go or easily plug in what you’ve spent before you even get home to your computer.

• Be sure to utilize a spending management system to help you stay on budget. I highly recommend the cash envelope system.

Remember, once you have your budget set up, the first order of business would be to save up a starter emergency fund of $1,000 as fast as possible to be sure you are prepared for any emergencies that might occur.

Bottom Line

When it comes to creating your budget with an irregular income, don’t overcomplicate it.

You can easily stress yourself out about what your upcoming paycheck will look like and whether or not it will be enough.

Following these steps will ensure you and your finances are prepared for your fluctuating income. Budgeting a variable income can feel overwhelming, but breaking it down step-by-step will allow you to create a budget that will help you regain control of your finances.

More From Cents + Purpose

• How to Create a Simple Monthly Budget You Can Actually Stick to
• Budgeting as a Couple: How To Get Your Spouse on Board