When you have unpredictable income, it means the income you receive doesn’t come regularly. Some months you may bring home more and others you may bring home less. This can make budgeting and managing your money feel impossible, especially if you have debt or other monthly expenses that must be paid. And if you’re really having trouble repaying your debt, you may want to consider a debt consolidation loan to streamline your bills, get a lower rate, or reduce your monthly payment.
Not knowing how much you’ll earn, when you’ll get paid, or how much you’ll make the following month seems unstable, but for many who are freelancers, self-employed, salespeople and others, this is reality. The good news is there are strategies you can implement to budget and manage your money better. Here are five to get you started.
Know your average monthly income and expenses
To attempt to manage a fluctuating income, you have to know your average monthly income and how much you’re spending each month on bills and other expenses.
Start by tracking six months’ worth of income and expenses, and divide it by six to get your average income and spending per month. Knowing how much you’re bringing home compared to how much you’re spending (on average) can help you manage your monthly spending when your income is lower than usual.
You should also know the bare minimum expenses you must cover on a monthly basis. This could include rent or mortgage, other debt payments, utilities, minimum groceries, etc. These are essentials you have to pay to survive or avoid going to collections. Having this number lets you know the minimum income you must bring home to get by.
Calculate your ‘other’ monthly expenses
In addition to your essential monthly expenses, you may have other non-essential expenses such as streaming services, gym memberships, entertainment, clothing, and dining out. When you have an unpredictable income, you should be familiar with where you can cut expenses quickly to ensure you have enough for the essentials.
Start by making a list of all “other” or non-essential monthly expenses, including how much you pay for them. Rank them from least important to most important to you. That way if you find your income isn’t enough to cover what you need, you quickly know where you can start cutting spending.
Treat your savings as expenses
With an irregular income, it can be tempting to pull funds from your savings during the low-income months. However, stashing your savings in a separate account and contributing to that account each month as if it’s a necessary expense can help ensure you’re still meeting your savings goals and will be covered in an emergency.
One strategy to help boost your savings is by adopting the zero-sum budget. The first step is to consider your average monthly expenses and use that as a baseline. During months when you make more than that baseline, put the extra money into a separate savings account. During months when you make less, you can draw from that account to bring your salary up to the baseline.
In order for this to be sustainable, you must build up adequate savings. Try to consistently contribute to savings each month, even if it’s just 10% of your income, for that extra layer of protection.
Set up automatic transfers
Another way to automatically build your savings is by setting up automatic transfers.
In this case, you’d deposit all of your income into a checking or spending account that you’d withdraw from to pay bills and other expenses. Then, each week you should set up an automatic transfer of a certain amount into a separate savings account. That way you don’t have to think about contributing to savings because it’s happening automatically, but you’ll still be conscious of how much you have to spend.
It’s also helpful to separate your spending and saving money because it keeps you from overspending.
Build an emergency fund
An adequate emergency fund is essential if you have unpredictable income. This is money you set aside for necessary expenses during an emergency, such as an unexpected vehicle or home repair or medical bills.
Experts recommend saving three to six months’ worth of your regular expenses. Then, once you build your fund, you can put extra savings toward your other financial and savings goals.
This emergency fund can put you at ease knowing you’ll be able to pay necessary expenses in the event of an emergency or during a low-income period that makes paying bills difficult.
Caitlyn Callahan
Caitlyn is a freelance writer from the Cincinnati area with clients ranging from digital marketing agencies, insurance/finance companies, and healthcare organizations to travel and technology blogs. She loves reading, traveling, and camping—and hanging with her dogs Coco and Hamilton.
