If you have an inconsistent income, trying to budget effectively can be stressful. I tend to have lots of anxiety in general so when I started earning a fluctuating income last year, my nerves often got the best of me.
Freelancers, servers, bartenders and the like all have this in common and it can be hard to plan out what you’ll spend and how you’ll manage your money if you don’t know what you’ll be earning in the first place.
Luckily, there are a few things you can do to ease your nerves and regulate your budget even when you earn an inconsistent income.
1. Set a Bare Bones Budget
When your income fluctuates, it’s important to have a bare bones budget in place so you’ll know how much it costs you to pay for bare necessities every month. For example, expenses like your rent or mortgage, utility bills, basic grocery costs and other fixed and mandatory expenses like car insurance should be included in this bare bones budget.
Your extra student loan payment, dining out allowance and travel fun contributions should not be included because you can survive without spending money in those areas if you needed to.
Your bare bones budget should be significantly smaller than your typical budget that includes all your fixed and variable spending categories. For example. I know my bare bones budget includes expenses that probably add up to $1,500/month. If I were to follow my regular budget, I’d probably spend $2,500+ for the month. Yet and still, I know how much I need to earn at minimum so I can meet my needs.
This eliminates a ton of stress because as long as I hit that bare bones budget number, I know that I’m in the clear and anything extra I earn can be spent or saved as I see fit.
2. Build An Emergency Fund AND Cash Buffer
Sometimes, budgeting with an inconsistent income can be flat out scary mainly because you may not earn enough to meet your basic needs and expenses. If that’s the case, don’t beat yourself up if it happens every once and a while.
Prepare your finances by setting aside emergency fund money as well as a checking account buffer. You never know when unexpected expenses pop up or when you may see a lull in your income. That’s why it’s wise to save up around 3-6 months worth of expenses in an emergency fund so you can rely on that money during tough financial times.
If your job relies on seasonable business, you can set aside extra money during the busy months when you’re earning a lot more so you can ration it out during slower months when your income is lower.
A checking account buffer is also good to have as well because it can act the first line of defense when you have more money going out than in. How it works is you keep a fixed amount of money in your checking account in case you receive some extra charges, late payments from your job, etc.
When I first became self-employed, I started with a small buffer of about $750 and it helped me feel much more financially secure.
3. Live On the Previous Months’ Income
Traditionally, people spend their paychecks as soon as they get them. If you want to get rid of your anxiety surrounding your inconsistent income, I’d highly recommend living on the previous months’ income. This is what I do to help me budget more effectively. Basically, the money you earn gets used the following month, so you know how much you have to work with from the very beginning.
If it’s October, I’m living on the money I earned in September and the money I’m earning now gets used in November. This can eliminate any confusion or worry you have and regulates the whole budgeting process.
Even though you may not get consistent paychecks or earn the same amount of money each time you get paid, you can tally everything up at the end of the month and spend it the following month. In order to start doing this, you need to either save up one months’ worth of regular expenses or you can even use a lump sum payment like a tax refund or a work bonus to start the cycle.
4. Spend Only What You Have
This goes right along with the previous method. Be careful not to spend your money before it hits your account (or hands). As a freelancer, I’m not guaranteed work or payment for everything so I make it a habit to only spend and budget based on the money I actually receive and not just the money I earn or the expenses I have.
Becoming more frugal will help you avoid going over budget because you’ll learn to live well on less than you earn. This will also allow you to dedicate more money toward important financial goals like saving and investing.
Do you have a fluctuating income? How do you budget every month?
Chonce is a freelance writer who’s obsessed with frugality and passionate about helping others increase their savings rate, eliminate debt, and work toward financial stability. She chronicles her journey to becoming debt-free on her blog, mydebtepiphany.com.
