Ups and Downs of Budgeting with Irregular Income
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Before I became a full-time freelance writer, I thought budgeting with an irregular income would be similar to budgeting with my regular paycheck. After all, my fixed expenses would stay the same each month and any discretionary spending – like Netflix or going out to eat – would be easy to adjust.
I had no idea how difficult budgeting with an irregular income was going to be.
Don’t get me wrong – I love freelancing. It has improved my life in so many ways.
I don’t worry about using vacation time or missing work if I get sick or needing to take my daughter to the dentist. I also have more time to spend doing the things I love.
But, figuring out my finances was a struggle.
After nine months of freelancing, I’m starting to get a grip on budgeting with an irregular income. Here are my tips on how to make it work.
Manage Your Income
I never had to manage my income as an employee. I earned an hourly wage and was at my desk for 40 hours a week. Because my routine didn’t change, the company sent me a paycheck for the same amount every week.
But, you don’t get regular paychecks with an irregular income.
When you’re in control of your income, you have to learn how to budget and manage it. Otherwise, this irregular income thing will never work.
The trick is to break down your annual income into bite-sized goals.
How far you break down your goals depends on your profession. As a freelancer, I set daily income goals. Real estate agents might do better with monthly or quarterly goals.
Regardless of whether you use a pen and paper or an Excel spreadsheet budget, here’s how to manage your income:
- Set an annual income target of how much you want to earn for the year.
- Then divide your annual target by the number of weeks you want to work in a year. This is your weekly income goal. If you want to take four weeks of vacation, you’ll divide your annual amount by 48 weeks instead of 52.
- To get a daily goal, divide that number by 5 for a 5-day work week or by 4 for a 4-day workweek.
For instance, if your annual income goal is $70,000 and you want to take four weeks of vacation, you must earn $292 every day. If you bump your daily income up to $365, you only have to work a 4-day workweek.
Daily income goals have revolutionized how I approach my work and my budget. I always know if I’m on target or if I need to step up my game to keep my income at a level that meets my financial goals.
Knowing how I’m doing frees me up to enjoy the best freelance life has to offer – flexibility!
Create a Bare-Bones Budget
Speaking of a budget, do you have one? If you don’t, you need to make one. Actually, I suggest making two budget templates: A regular budget and a bare-bones budget.
A regular budget can include all the things you want to spend money on, including discretionary expenses like going out to eat, entertainment, a gym membership, and your Audible subscription.
A bare-bones budget acts as a safety net when your income doesn’t quite measure up.
It includes the bare minimum you need to survive and keep the debt collectors from knocking on your door. This means there are no entertainment expenses, clothing, going out to eat, vacations, or manicures.
Most of the time, your regular budget will work just fine.
But you can jump into using your bare-bones budget when you need to keep your finances from spiraling out of control.
I know first-hand that it works – a bare-bones budget has saved me more than once.
Establish a Buffer
My monthly income can fluctuate by $1,000 or more each month. The times I’m swimming in cash are fantastic – I can think of a million things I’d love to spend that extra cash on.
But, the extra money you get with an irregular income isn’t really extra money. You’ll probably need to rely on that surplus to pay basic living expenses later.
An emergency fund is an important part of everyone’s financial journey. However, the ups and downs of an irregular income aren’t an “emergency.”
In addition to your efund, when you earn an irregular income, you need to create a separate fund to act as a buffer. This “buffer account” can even out unpredictable income swings. On months I exceed my income goals, the extra goes into my buffer account. When my income is low, I dip into my buffer to help make ends meet.
Ideally, aim to save 100% of your monthly expenses in your buffer account, but starting with 25% is often enough to sustain you through lean times. Once your buffer is in place and fully funded, you should be able to use that extra income for things you enjoy.
Make Room for Fun
Life can be hard and the stress of an irregular income can take its toll. Plus, as a freelancer who works from home, working all day, into the night, and on weekends can be an easy trap to fall into. That’s why making room for fun is important.
Sometimes you need to lose yourself in laughter or excitement, and just because your income is unpredictable doesn’t mean you can’t have fun.
There are plenty of free and cheap ways to live it up while keeping money in your pocket. Personally, I love to play cards and board games. A family favorite is Exploding Kittens. I also love Skip-Bo and Monopoly.
Road trips are another inexpensive way to make room for fun. If you make it a day trip, you save by not having to pay for a hotel. Packing a cooler with drinks and snacks can make it more affordable, too.
Final Thoughts on Budgeting with Irregular Income
The stress of budgeting with an irregular income caught me by surprise. I’m a self-proclaimed budget nerd and thought I had all the bases covered. Not knowing where my next paycheck would come from or how much it would be turned out to be more stressful than I imagined.
But, it doesn’t have to be.
Managing my income with daily income goals has made the biggest impact on my stress levels. I knew if I met my daily targets, my monthly income would work itself out. From there, managing expenses with a budget helped tremendously.
If you are preparing to transition to an irregular income from a steady one, start a “buffer account” and pad it with at least 25% of your monthly expenses before you say goodbye. Trust me, it’ll save you a ton of stress.
The bottom line is that a little preparation goes a long way. Whether you’re using a budgeting app or just a sheet of paper, you can make budgeting with irregular income work for you when you keep tabs on your cash flow and have a buffer to carry you through tough times.
What tricks do you have to share? Let us know in the comments! 
My partner works on a commission, and his salary is anywhere from double to triple mine in a given year – so it definitely makes up the majority of our budget. What we did was made sure a “normal” month – not quite bare bones but certainly not extravagant – fit into the lowest monthly income he’s seen over the past 3 years. This informed, for example, what size mortgage payment we were willing to take on and what “extras” we’re willing to commit to (e.g. Netflix yes, full cable or satellite TV package no).
Then in months when we have more than what we need to cover our standard budget, I triage where the extra money goes. It is some combination of savings in various categories (e.g. emergency, the next big goal such as when we we’re planning a wedding, extra home maintenance/updates, travel, etc.), boosting Roth contributions now that we have a healthy emergency fund, and, lastly, giving ourselves some extra spending money just for fun.
It means I have to do some math every month, but it’s been a good mix for us of not being surprised by large or unexpected expenses while also being able to enjoy it a little bit when he has a really good quarter.