How to create a budget when you have irregular income

Why should you budget?

Budgeting, even with an unpredictable freelance income, can help your finances feel less haphazard, less mysterious and more like something you have control over. It can be the first step toward working smarter, not harder in terms of structuring what gigs you take and what rates you charge. And it can help you figure out what’s important to you in terms of saving and spending. Consider a zero-based budget so you can distribute all of your income each month to either expenses or savings accounts.

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How to begin budgeting for irregular income

The first step towards any budget is defining your monthly expenses—essential and nonessential. Your essential expenses will be things like rent, utilities, and car payments. Nonessential expenses might be things like takeout, streaming services, and new clothes. After you’ve listed them everything, figure out what you can potentially lower or cut all together. But that’s just the beginning—freelancers and those with irregular income have a few other questions to answer to make a budget work for them.

Figure out a base amount you absolutely must make—or your lowest likely income

You can approach this in a few different ways. Using your expenses above, figure out the least amount you can make to cover your essentials and keep your head above water. Then, try to structure your gigs to ensure you are making at least that much, and preferably extra, every month. Alternatively, look at past pay stubs to figure out your past lowest amount of income and prepare for that to be your new reality. What would you change if that were the case? And is this situation avoidable with different decision making? In general, it makes sense to plan for less income and be pleasantly surprised when you exceed that goal, rather than being surprised with less money or more expenses.

Know when you have the highest income

This is when referring to your current expenses and past paystubs and bookkeeping will be helpful. Your records can help you figure out how much excess to skim off these larger paychecks to save for later month-to-month income balancing, or when you make less than you expect, or when you can best accommodate larger expenses.

Set up some separate accounts, including an emergency fund

That extra money overflow from larger checks can live here—that way it won’t get mixed into your regular account where you can accidentally overspend it without trying. You should also consider an emergency fund, perhaps separate from the overflow account. Emergencies happen to everyone and having money stashed away just in case can help keep your bottom line more stable long term.

Track your spending

Not only should you do this so you understand if you’re sticking to or exceeding your budget, but it can also help you understand when certain expenses might arise, such as an accountant in tax season, quarterly tax payments, an oil change every three months, or higher heating bills in winter.

Explore ways to stabilize your income

This might not be possible for everyone, and you might not want to trade stability for flexibility. But you can find little ways to make things more predictable. For instance, as a freelancer, consider taking on an anchor client who will guarantee you set hours or a set amount of money per month. And while for some jobs it may make more sense to have an hourly charge vs a flat rate, a flat rate can also provide a known quantity in your budget. You can even ask clients to pay you set amounts every two weeks or invoice in such a way that there’s always money coming in.

Your income may always remain a bit irregular, but with a budget that considers those fluctuations, you can be better prepared to ride the feast or famine, boom or bust, that freelance life can sometimes provide—and be inspired to find solutions to your financial challenges.