Summary
From the gig economy to entrepreneurial endeavors, many people experience irregular income. Join us as we break down best practices and our irregular income budget tips.
Imagine celebrating your biggest payday one month, only to struggle with bills the next. This rollercoaster is the reality for freelancers, gig workers, small business owners, and entrepreneurs who don’t receive a steady paycheck. Budgeting becomes even more important under these conditions of unpredictable income.
With the right strategy, you can find greater stability, move towards financial goals, and build long-term financial wellness—no matter how uneven your earnings.
Budgeting with Irregular Income
Budgeting on a fluctuating income can be particularly tricky. Many Americans live paycheck to paycheck, but for those with inconsistent earnings, financial planning requires even more strategic thinking and discipline.
The challenges tell the story:
- Over 36% of U.S. workers participate in the gig economy, relying on variable income streams per a 2022 McKinsey survey.
- 73% of Black business owners were the most likely to tap into their personal funds, per the Federal Reserve System’s 2021 Small Business Credit Survey, which makes financial planning crucial.
- Nearly 40% of Americans struggle to cover a $400 emergency expense per a 2023 Federal Reserve Report.
Without proper budgeting, inconsistent income can lead to missed bills, late fees, and financial stress. Let’s look at how to build a proactive approach to get out ahead of irregular income.
Account Cleanliness: It’s All About Organization
One of the best ways to manage variable income is by structuring your bank accounts wisely. Keep them clear and intentional.
- Checking Accounts. Maintaining two checking accounts allows you to keep your finances clean. Create one for inbound income (main account) and another for daily expenses (lifestyle account).
- Savings Accounts & Goal Funds. Use separate savings accounts for specific goals such as travel, taxes, and irregular expenses like annual membership payments.
- Emergency Fund First. Excess money in high-earning months should go toward savings before you consider splurging. Aim to save up to 3-6 months of living expenses in an emergency fund to prepare for months with smaller earnings.
Set Goals and Automate Your Way to Stability
Setting financial goals keeps you motivated and disciplined when income fluctuates. Whether it’s saving for a down payment, paying off debt, or building an education fund, set S.M.A.R.T. goals. This term stands for Specific, Measurable, Achievable, Relevant, and Time-bound.
Here is a helpful example… I will save $6,000 for my emergency fund in 12 months by setting aside $500 per month from each paycheck, adjusting in months with higher or lower income shifts.
Next, let automation help simplify your finances:
- Set up automatic transfers from your income account to savings each month.
- Use our tools like Money Management to track spending patterns and adjust based on earnings.
- Leverage AI WiseOne™ Insights for savings and budgeting recommendations.
The Irregular Income Budget
Adjust your budgeting to help smooth out uncertainty. This step-by-step approach considers the most critical things to keep in mind with irregular income.
- Calculate Your Average Monthly Income. Look at your last 6-12 months of earnings and calculate the average. Use this as your guiding baseline for predictable expenses.
- Use the Lowest Month Method. Identify your lowest-earning month and build a budget based on that number. This prevents overspending in high-income months and greater predictable stability.
- Prioritize Essential Expenses First. Cover rent, utilities, insurance, and food before anything that is unnecessary spending.
- Create a Buffer Fund. Set aside a larger portion of every high-income month to bridge gaps when income is lower.
- Estimate Earnings & Expenses. Use Money Management to review patterns and adjust spending in advance.
- Automate & Adjust. Schedule transfers to savings on payday, and reassess your budget monthly based on earnings.
An irregular income doesn’t necessarily mean financial instability—it just requires smarter planning. By keeping your accounts clean, setting intentional goals, and using the right tools, you can take control of your finances and build long-term wealth!
