How do I budget with an irregular income?
When your income fluctuates each month, set your budget based on your minimum expected income. Make sure you have enough left over to pay for necessities, and you also want to leave room for months where you may make less money. When extra money does come in, apply it toward bills, savings, debt, and then anything you want. Recalculate your budget every time you get paid rather than planning for what you had during your best earning month.
Budgeting with an irregular income
Your budget should allow for the irregularity of income from paycheck to paycheck. Using your income for the previous few months, select a monthly figure you feel comfortable using. This may be your lowest usual month, or simply an amount that you could reasonably expect from your work.
Use this smaller number for your basic budget. It covers all of your fixed expenses like rent/mortgage, utilities, food, gas/transit, insurance, credit card minimums, etc. You also might have some bills that can't be put off (child support, back taxes, a doctor's bill). If these items add up to more than your conservative income estimate, you'll either have to negotiate lower bills, change when they're due, dip into your income buffer, or otherwise smooth out your income.
Immediately after receiving your paycheck, put money aside to cover upcoming bills. If you like, you can open a second bank account just for this purpose. You also need to think about bills you won't have each month. Things like insurance, tax, repair, education and gift purchases all need to be budgeted for. Calculate the total annual cost of these and divide by the number of pay periods per year. Set aside some money each payday when you can.
Any income received above the amount needed for a basic budget should be applied in the following order:
- Replace any money needed for upcoming bills.
- Build or refill a cash buffer to cover months of low income.
- Set money aside for annual expenses you know are coming.
- Pay down debt or put more money in savings.
- And spend more on the flexible stuff only after you have satisfied the earlier requirements.
Check how much money you have every time you get paid. Figure out what you need to pay until you get paid again, and then figure out how much you can spend. This is more reliable than assuming that your income is consistent because you had a good month.