How to budget with an irregular income

In 2023, The Federal Reserve reported that 28% of U.S. workers had an irregular income that varied at least occasionally from month to month.¹ And with the rise of the gig economy, variable incomes may be here to stay.

Understanding income patterns

For people with an irregular income, the first step should be to assess if one has an income pattern. Keeping a record of all sources of income, how and when they were earned, as well as every expense is essential to gain a clear financial picture.

Tracking income and expenses can help identify trends — such as what months, days, or periods of each day are the most profitable — and inform personal financial decisions. By consistently monitoring these fluctuations, individuals may be able to better anticipate lean periods and plan accordingly.

Examples of irregular income

Irregular income jobs come in various forms, each with its own unique characteristics. The categories below describe irregular income and give examples of the jobs included in each:

• Freelance work. This includes a multitude of jobs such as writing, graphic design, management, consulting, and many others. Income can vary significantly based on the number and type of projects completed each month.
• Project-based earnings. Workers in fields like construction, event planning, or software development may receive payment upon the completion of specific projects. For instance, a contractor might be paid after finishing a home renovation.
• Seasonal jobs. These are jobs that are tied to specific seasons, such as retail work during holidays, lifeguarding in the summer, or agricultural work during harvest times. A holiday retail worker might see high earnings in December but much lower income in the off-season.
• Commission-based jobs. Sales roles often rely on commissions, which can fluctuate based on performance and market conditions. For example, a real estate agent's income can vary greatly depending on the number of homes sold.
• Gig economy jobs. Income from platforms such as food delivery apps, personal transportation apps, or other gig-based work can be inconsistent, as it depends on the number of jobs completed and demand in the area.

Building a budget for an irregular income

Creating a budget with an irregular income requires careful planning to ensure essential expenses are prioritized.

Here are two examples of calculating irregular income:

Prioritizing essential expenses

When building a budget, it's recommended to prioritize monthly fixed expenses that must be covered regardless of income fluctuations. These include:

• Rent/mortgage. A top priority is to ensure that housing costs are covered.
• Utilities. It's essential to allocate funds for needs like electricity, water, gas, and other utilities.
• Food. Budgeting for groceries and meals is necessary for maintaining a basic standard of living.
• Insurance. Health, car, and home insurance premiums should be included to avoid lapses in coverage.

Allocating money for these fixed expenses as soon as income is received may help to maintain financial stability. Once essential expenses are accounted for, budget toward variable expenses, such as entertainment, dining out, and non-essential shopping.

Creating an emergency fund

An emergency savings fund is an account set aside to be used specifically in case of emergency, helping to manage unexpected expenses or income shortfalls.

Having an emergency savings account can be really helpful, especially for those with irregular incomes.

Potential benefits of an emergency fund include:

• Financial stability. A maintained emergency fund helps cover essential expenses during periods of low income or unexpected financial hardship.
• Lower stress. Knowing that there is a financial cushion available can reduce stress and anxiety about finances.

Building an emergency fund with irregular income

Even with an irregular income, it’s possible to build an emergency fund gradually. Here are some strategies to consider:

• Set aside a portion of every paycheck. Allocate a percentage of each paycheck to the emergency fund. This consistent approach, even if it's a small amount, can accumulate over time.
• Save windfalls from high-earning months. During months with higher-than-average earnings, set aside a larger portion for the emergency fund to potentially boost savings more quickly.

Budgeting tools and resources

There are various budgeting tools that can help those with irregular incomes. These include:

• Budgeting and saving apps. Most of these apps offer specific features for managing finances with an irregular income. These apps offer features like expense tracking, savings goals, and automated reminders to help stay on top of finances.
• Budget spreadsheets. For those who prefer a more customizable option, budget spreadsheets can help. They allow for flexibility in tracking income and expenses and can be tailored to fit specific financial situations.