Are you trying to figure out how to budget with an irregular income? You’re not alone! About 57 million people in the United States work as freelancers and gig workers.1 Managing money on a variable income is a challenge shared by everyone in the gig economy.
Learning to budget with an inconsistent income requires a blend of self-discipline and flexibility—but you can do it! Start with these steps to take control of your finances.
Step #1: Calculate how much you earn.
Add up your income over a period of months. If you’re new to gig work, you’ll need to estimate based on what you think you’ll earn each month. There are two main ways to budget with a variable income:
- Base your budget on your average monthly income. Add up your earnings for six months or a year, and divide by the number of months. This gives you an estimate of what you can expect to earn each month. This method works best if your income doesn’t fluctuate very much from month to month.
- Base your budget on your lowest month of income. Figure out the month when you earned the least, and base your budget on that amount. This method is safer because it ensures you can cover your essentials even during slow months.
Step #2: Add up your essential expenses.
Calculate all the expenses you must pay each month. These might include:
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- Housing: rent, mortgage payment
- Utilities: electricity, water, gas
- Groceries: food, household supplies
- Insurance: health, auto
- Transportation: gas, car payments, public transit
- Debt payments
- Technology: cell phone, internet
- Child care
- Personal needs: clothes, shoes, haircuts
- Savings: taxes, emergencies, goals
For guidance as you work on this step, check out the downloadable Budget Worksheet from Coast Central Credit Union’s Practical Money Skills.
Step #3: Compare income with expenses.
Put the totals of Steps 1 and 2 side-by-side. If your essential expenses are more than your income, you’ll need to cut costs. Can you spend less on groceries, lower your utility bills, or find a more affordable insurance plan? If you can’t pay your basic expenses, you’ll dig yourself into a financial hole, so you must address this right away.
If your income exceeds your expenses, you have some flexibility! You can increase the amounts for essential expenses and/or add extras to your budget, such as:
- Paying off debt faster
- Saving more
- Entertainment and eating out
- Memberships and subscriptions
- Hobbies, travel, and luxury items
Step #4: Determine your monthly salary.
Now you can decide how much you need to pay yourself each month. Based on the budget you’ve calculated, give yourself a consistent salary to help smooth out the ups and downs of irregular income. You might choose to pay yourself a “regular” salary during the average months and a bare-bones salary covering only essentials during lean months.
Step #5: Build a fluctuation fund.
In order to receive a dependable salary, you’ll need to have a cushion—a fluctuation fund. If you get more gig work than usual, add to this fund. During months when you don’t make enough to pay your salary, money from this fund will make up the difference.
Step #6: Set up savings accounts.
Dedicated savings accounts will make budgeting easier. Here are the most important ones:
- Tax Fund: Save for quarterly estimated taxes. Visit the IRS Gig Economy Tax Center to estimate what you owe.
- Goals Fund: Save for specific things, like a vacation, a car, or other major purchases.
- Emergency Fund: Aim to save three to six months of essential expenses for unexpected situations. Check out Coast Central’s Save for a Rainy Day calculator.
- Retirement Fund: Do some research to find the best retirement fund for your situation, and make sure you contribute to it faithfully. Look into the Individual Retirement Accounts (IRAs) offered by Coast Central, as well as other options.
Step #7: Review your budget every month.
Make it a habit to look over your budget at the end of every month, so you can adjust it as necessary for the coming month. Some months will have more expenses than others—such as during the holiday season—so you will need to plan ahead and adapt your budget accordingly.
Bonus Step: Keep learning.
Knowing how to budget with an irregular income will help you thrive in the gig economy! Want to learn more about budgeting, saving, or managing debt? Check out Coast Central’s Practical Money Skills for tips on a range of subjects! If you’re not already a Member, discover the benefits of Coast Central’s products and services, which will help you make the most of your income: coastccu.org.
Coast Central—Where YOU are Central.
1. Jeff Beckman, “2024 Gig Economy Statistics: Unveiling 85+ Remarkable Insights,” Techreport, revised May 29, 2024, techreport.com/statistics/business-workplace/gig-economy-statistics.