Budgeting is a skill everyone should know. It helps you manage money, plan for what you need, and save for goals like a vacation or a new home. But sticking to a budget can still be tricky for many people. In fact, a study shows that 84% of Americans with a budget admit they sometimes go over it. This goes to show how important, yet challenging, budgeting can be.
Now imagine trying to budget when your income changes every month. This is the reality for people like freelancers, gig workers, or those with commission-based jobs. Their pay can go up and down, so they have to adjust their spending based on what they have. It’s not easy, but is it possible to budget well even with unpredictable paychecks?
What is a Variable Income?
Variable income means your paycheck changes from month to month. Unlike a fixed salary, the amount of money you earn can go up or down depending on your work. This can make managing your money harder because you don’t know exactly how much you’ll have each month.
Many people have jobs where income isn’t steady. For example, freelancers earn different amounts depending on the projects they take on. Gig workers, like delivery drivers or rideshare drivers, make money based on how much they work or how busy it is. Salespeople with commission-based jobs only get paid when they make a sale, and seasonal workers might earn a lot during peak times but much less in off-seasons.
To figure out your variable income, the first step is to look at what you’ve earned in the past. Check the last few months to find both the lowest and highest amounts you’ve made. Use the lowest amount as a safe estimate for budgeting—it’s better to be careful than to assume you’ll make more. If you want a more average number, add up your income from a few months and divide it by the number of months.
7 Ways to Creating a Budget with Variable Income
Budgeting with an income that changes from month to month might feel tricky, but it’s entirely possible with some planning. Here’s a simple guide to help you stay on top of your finances, even when your paycheck isn’t the same every time.
1. Keep Track of Your Spending
The first step to managing your money is knowing where it goes. For a month, write down everything you spend—things like rent, groceries, commuting, and even small purchases like coffee. Use a notebook or budgeting app to keep it organized. For example, if you realize you’re spending $50 a month on subscriptions you barely use, that’s an area where you can save.
2. Focus on What You Truly Need
Sort your expenses into “needs” and “wants.” Needs include the basics, like food, housing, and bills. Wants are extras, such as dining out or buying new clothes when you don’t really need them. If your income dips, focus on covering your needs first. For example, skip the takeout and cook at home if money feels tight—it’s a small adjustment, but it adds up.
3. Budget Based on Your Lowest Income
To play it safe, look at your past paychecks and find the lowest amount you’ve earned. Use this as the foundation for your budget. For instance, if your lowest paycheck is $1,800, base your monthly expenses on that number. If you make more in a given month, you’ll have some extra money to save or use for larger goals, like paying off debt.
4. Build an Emergency Fund
Try to set aside a little money each month for emergencies, like car repairs or unexpected medical bills. Even $20 or $50 a month can make a difference over time. Your goal is to save enough to cover three to six months of essential expenses. For instance, if your monthly bills are $2,500, a fund of $7,500 to $15,000 can provide huge relief during tough months.
5. Adjust for Highs and Lows
Because your income varies, your spending needs to be flexible too. If you get extra cash one month—say from a big project—set it aside for slow months or use it to pay off debt. On lower-income months, focus only on what’s essential, like paying bills and buying groceries. For example, skip non-essential purchases, like going to concerts, until you have more breathing room.
6. Automate What You Can
Automation makes budgeting easier. Set up automatic transfers to savings or bill payments so you don’t have to think about them. For instance, if you’re paid weekly, set up a transfer to put $50 into savings each payday—it’ll add up without much effort. Automating also helps you avoid late fees or overspending on unnecessary items.
7. Review and Adjust Frequently
At the end of every month, review your budget. Did you spend more than planned? Where can you cut back next month? For example, if you overspend on groceries, consider meal planning or buying in bulk to save money next time. If you had money left over, decide what to do with it—save it for future needs or put it toward a financial goal like paying off credit cards.
Benefits of Efficient Budgeting with Variable Income
Figuring out how to budget when your income isn’t steady can feel tricky, but it’s completely doable. You can make a plan that works for you by monitoring your expenses, concentrating on the necessities, and planning for months when your income is lower. Things like saving for emergencies and being cautious with your income predictions can make a big difference in handling ups and downs.
The rewards of smart budgeting are worth it. You’ll feel more secure financially, even during months when money is tight. You’ll stress less because you’ll have a clear plan for how to manage your money. Plus, you’ll get closer to reaching your goals, like saving for something special, paying off debt, or just feeling more in control.
It’s okay if you don’t get it perfect right away. Budgeting is a skill you can grow over time. With small steps and practice, you can take charge of your finances and feel confident, no matter how unpredictable your income is. Start now, and see how much you can achieve!