How to Create a Budget with a Variable Income
Budgeting can be more difficult when your income changes every month, but here's how you can do it.
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A budget can help you take control of your personal finances. However, budgeting plans and guides may assume your income stays relatively the same throughout the year. For many people, that's not the case.
You might have an irregular income because you run a business, work on commission, pick up side gigs or don't get set hours at work. No matter the reason, budgeting with a variable income isn't impossible—even if it is a little trickier.
Setting the foundation and creating a workable budget can help bring certainty to your finances. It could be even more important for people who often experience the highs and lows that come with an inconsistent income.
Start With What You Know
You might not have a steady income, but you can start by creating the expense portion of your budget. Getting these numbers down can give you a baseline to build from and help you avoid unexpected setbacks that might knock other people off course.
To start, try to determine how much you'll need each month for different types of expenses:
- Some bills stay the same each month, such as your rent or mortgage payment, phone plans, insurance, childcare, loans, and streaming services. It can be relatively easy to determine the monthly amount you need for each of these expenses.
- Other household bills can vary, such as food, utilities, and gas. While you might not know exactly how much you'll spend each month, you can estimate an average monthly amount.
- Don't forget less frequent expenses. Set aside the monthly equivalent of what you'll need for infrequent expenses, such as vehicle registration, gifts, vet bills, vacations and subscriptions.
- Or to include spending money in your budget. Create categories based on how you like to spend your money or free time to track your "fun money" expenses.
Many people also create expense categories for their savings goals. Perhaps you're saving for retirement, establishing an emergency fund, buying a home or have another goal in mind. Set a target for how much you want to save each month and add it to your budget.
Create a Spending Plan That Doesn't Rely on Your Income
You can try different budgeting systems to see which one works best. But one trick when you have a variable income is to budget using a fixed amount as your income.
For example, you might add up all the expenses and find that you need $3,000 a month to cover your bills, enjoy the month and make progress toward your financial goals.
Perhaps you're in the midst of a busy season and making $4,000 a month. Instead of increasing your budget during these flush months, set aside the extra $1,000 in a special fund. It could be part of your emergency fund or kept in a separate account. Then, during months when you make less than $3,000, pull from that fund to make up the difference.
The system can add certainty and predictability to your finances—something many people with a variable income lack. You could think of it as paying yourself a fixed salary from your variable income.
Build Your Safety Net
It can take time to build up the funds you need to weather ups and downs. You may want to jumpstart the process with a spending fast and set aside the savings. Or look for ways to regularly save money to decrease your baseline expenses.
Ideally, you can build up enough of a cushion that you have the money set aside for your "salary" before the beginning of the month. You may even get to the point where you have the next two months covered—which could greatly ease financial anxiety.
A large safety net can also open up new opportunities. If you have a business, you may be able to take on larger projects that pay more but require upfront expenses. Or you could be pickier about side gigs and hold out for the offers that pay the most.
Stay Flexible and Reevaluate Your Goals
Budgets don't have to be rigid all-or-nothing systems, and they will inevitably and naturally shift over time. Partially because your income and expenses may change. But also because you'll achieve and set different goals.
It's important to remember that financial health doesn't come from making the numbers on a spreadsheet match. In the end, budgeting should help you take control of your finances and make progress toward your financial goals. If you have to take a short break or make a change mid-month that's okay, but try to find a sustainable system that works for you.
Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. In addition to FICO, Louis works with a variety of financial services firms, credit bureaus, and educational websites, including LendingTree, Credit Karma, and Experian.