Budgeting Tips for People With Fluctuating Incomes

Young wife working at home.
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In 2020, there were more than 64.6 million people working freelance in the U.S. According to Statista, by 2027, 86.5 million people in the U.S. will be freelancing, accounting for more than 50% of the total U.S. workforce. Freelancers, as you likely know, don’t get paid a set salary by one company; instead, these gig and contract workers make income from clients. As a freelancer myself, I can vouch this income can be irregular if not downright volatile. Some months I rake in $10,000. Other months I make $500. In the tumultuous storm that was 2020, weeks upon weeks lapsed by without a penny coming in. 

Budgeting 101: How To Create a Budget You Can Live With

Financial planning as a freelancer is inherently difficult because you can rarely be certain of exactly what you’ll make on an annual basis. Fortunately, despite the ups and downs of one’s finances, there are proven ways to budget with a fluctuating income. Financial experts recommend the following tips.

Read More: Americans’ Savings Drop to Lowest Point in Years

List Your Monthly Expenses

Make Your Money Work for You

“Even if your income fluctuates, your expenses may be the same each month – which is easier to track,” said Dr. JeFreda Brown, a graduate of Walden University’s Doctor of Business Administration. “Calculate your average monthly income over the past 12 months and compare that to your lowest monthly income amount. Whichever one is lower, use that as your base monthly income when building a budget. As your income increases, your budget can be tweaked.”

Read More: 50 Ways To Live the Big Life on a Small Budget

Set a Baseline Average

“If you have a fluctuating income, my best budgeting advice is to find an average,” said Jake Hill, CEO of DebtHammer. “This needs to happen over at least 6 months, but if you can get a year, that’s even better. Add up all your income from that time (from all sources) and divide it by the number of months. This will give you your average monthly income and allow you the opportunity to budget more easily.”

Helpful: 19 Ways To Tackle Your Budget and Manage Your Debt

Underestimate Your Income

“It’s really best to underestimate your income and overestimate your expenses when budgeting, especially with an unstable income,” Hill said. “You will have lean times. That’s the nature of a fluctuating income. If you can count on that, you can budget in a way that allows you to have a buffer against the harder times.”

Find Out: 35 Useless Expenses You Need To Slash From Your Budget Now

Make a Minimum Budget

“People with fluctuating income should set a minimum budget from which they have to stick with regardless of if their salaries or income increase,” said James Page, a crypto technical writer and finance executive for Cryptohead. “Know what your needs are and prioritize them over everything. The thing is when people tend to earn more, they think that they should spend more too, but that’s where it all goes wrong. Not because you earn more, means you have to spend more too. Learn about the art of budgeting and make it a gradual process when adding more expenses. Do not spend the money you do not have.”

Make Your Money Work for You

Learn More: How I’m Sticking to a Budget and Spending Less During COVID-19

Sync Bill Payments With Your Income Schedule

“One of the simplest, most effective moves you can make is to time your bills with your income,” said Rivka Schreiber, CFP and founder of Flexible Finances. “For example, if your business is seasonal and you have more business in certain months, pay ahead on some bills in those months. For example, pay the full year of car insurance in those months, or pay ahead on your utilities an extra month. Pay any year-long professional subscriptions in the month you collect the most revenue from your clients. This approach will take the pressure off slower times of the year when your income is lower. If you are unable to pay ahead some months, put the additional income away in savings earmarked to cover 2-3 months of your core bills.”

Did You Know: 16 Splurges That Save You Money in the Long Run

Calculate the Impact of Saving a Little Extra

“If you can visualize the long-term impact of little-and-often savings, it will give each sacrifice a sense of purpose,” said Scott Nelson, CEO of Money Nerd. “If you want a new car, for example, work out how much it will cost you, how long you are prepared to wait and divide the amount needed by the time available: Your savings then have a tangible purpose and you’re much more likely to follow them.”

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Last updated: Feb. 26, 2021

About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.

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