How to Budget with Irregular Income

by Hank Coleman

Here is the next installment in our Reader’s Questions Series, which highlight questions emailed to me by you, the readers of Money Q&A. This time, we’re talking about income replacement with dividends when you retire. Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover.

If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It is one of the best personal finance books that everyone should read. Now….on to our reader’s question. This week’s Reader Question is from Valerie who writes…

What’s the best way to budget and how do you create a budget with an irregular income when your paychecks are up and down and every other week?

Best Way to Budget with Irregular IncomeA lot of people have irregular income. Waiters, freelancers, independent contractors, Uber and Lyft drivers, and a host of other people find their incomes vary from month to month.Variable or irregular income can make it a challenge to budget. How do you know how much money you can spend every month if your income level keeps changing?

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There is a best way to budget with irregular income. Below are some tips to help you learn how to set up and keep your budget when your income varies each month.

Best Way to Budget with Irregular Income

Plan For The Worst Case Scenario

The best way to best way to budget when you have an irregular income is to budget based on the worst month that you’ve had recently. Look at your income for the past 12 months. What was the least amount of money that you earned in a month last year?

If you earned $3,000 from income in your worst month and $5,000 from your best month, don’t base your monthly in your $5,000 month. Plan your spending pattern around $3,000 a month. Next year, as you continue to earn more income, reevaluate your budget on the new figures.

Create a Budget Like Normal

If you have an irregular income, you should create a monthly written budget just like everyone else. You should write down all of your income no matter the source. Be sure to capture all of the cash payments that you earned.

Next, you need to list all of your expenses. You should continue to work through each expense that you have earmarking every dollar for your expenses. Like Dave Ramsey says, every dollar that you earn needs to have a name. You need to allocate every dollar of income in your budget for an expense whether it’s to pay the rent or even to add to your emergency fund.

Don’t forget to budget to pay yourself first for retirement accounts, emergency funds, and health insurance costs. You should very judiciously add money to your entertainment categories with a portion of the money that you have left over.

You should consider increasing your savings and emergency fund, build up your fully funded emergency fund, and save for retirement with any extra income you earned above your worst case scenario, lowest income month that you used as your income baseline in your budget.

Continue tracking your spending throughout the month and continuously reevaluate your budget. Did you estimate a budget category wrong for this month? How are you capturing annual expenses like Christmas gifts?

You can use budgeting templates to help you set up your budget.

Create a 90 Day Budget

If you struggle to set up a budget, you may find that a 90-day budget works better for you. Just like creating a regular monthly written budget, a 90-day budget lumps all of your income and expenses into a three-month timespan.

Complete all of the same calculations that you would for a traditional budget. But, look at longer time horizon when adding your income and expenses. You must be more diligent when using method though and track your actual expenses closely.

Know Your Breakeven Point

Like a business, you need to know your breakeven point when you have irregular income. How much money do you need to earn each and every month to pay for your fixed expenses like your rent, utilities, insurance, and other expenses?

There are a few expenses that may suffer if you have a bad month as a freelancer or independent contractor. What categories from your budget are excluded in your breakeven calculations?

If you didn’t earn enough money this month, you may need to forgo adding to your retirement funds, eating out at restaurants, and spending on entertainment. You would not include those categories of your budget in your breakeven calculation.

You will have an income mark on the wall when you know your breakeven point. You’ll know exactly what you need to earn to pay the rent and other bills, and it will be a great motivator for you.

Goal Setting and Buffers

Knowing your breakeven point is a great way to set your income goals. How much do you need to make each month to cover all of your non-negotiable expenses?

Don’t forget to add a buffer to all of your expenses in your budget. There are many expenses that you may only know a ballpark figure for. How much money are you going to set aside every month in your budget for car maintenance, for example? What has been your historic trend in car maintenance spending over the past year?

Have a Killer Month? Add to Your Savings

You should budget based on your worst month last year. But, what do you do with the month left over in your budget when you have an incredible month with more income?

You should increase your retirement contributions and add to your emergency fund with the extra income from a great month. The rule of thumb is to have six to 12 months of living expenses set aside in a fully funded emergency fund. But, that’s not the case for those with an irregular income. You need more.

Workers with an irregular income should consider saving 12 months of living expenses, your breakeven point, at a minimum. You need to have a large cushion to protect yourself and your family for the lean months that are sure to be right around the next corner.

Don’t forget to have fun too. You may want to take a small portion of your extra income and increase your entertainment category of your budget just a little bit for that month. Treat yourself. You earned it!

Another Idea – Pay Yourself a Salary

Once you are more established, you can look at simply paying yourself a salary even as a freelancer or independent contractor with irregular income. If you have a nest egg build up, you can set up yourself on a payroll, a set bi-weekly paycheck just like an employee to help you budget easier.

You could also set up a separate checking account just for your living expenses when you have a large enough nest egg. Your account could have one year’s worth of expenses in it, and you could pay yourself a monthly salary from it.

Use Budgeting Tools and Apps to Help You

I personally use pen and paper or even an Excel spreadsheet to manage my family’s budget. But, there are a lot of great budgeting tools and smartphone apps that can help you budget.

You may want to consider using the free apps and services provided by companies like Personal CapitalBest Way to Budget with Irregular Income, Mint, You Need A Budget, or even your bank. Many banks now include a budgeting feature on their website and smartphone apps. I love using the budgeting tool through my bank, USAA.

The Best Way to Budget - USAA Budgeting Tool

Don’t make excuses just because you have an irregular income. You need a budget, and you have to take special care to ensure that you stay on track.

It is already nerve wracking enough not knowing how much your next paycheck will be. Having a solid budget and fully funded emergency fund can help you get through the lean times.

What about you? What is the best way to budget for you if you earn an irregular income?

Past Readers’ Questions:

Do you have a money question that you would like to ask? Email me your money, investing, retirement, savings, or other question to Questions [at]

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]

Hank Coleman has written 582 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.

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