Budgeting on a fluctuating income can feel like trying to hit a moving target. You may not always know exactly when your next paycheck is coming or how much it will be. When you’re worried about day-to-day bills, long-term goals like paying off debt might seem impossible to prioritize.
The key is to find calm within the financial chaos. You don’t know when or how much you’ll be paid, but there’s still plenty you can know and plan for in advance. That includes most of your expenses and some rough idea of your income over longer periods of time. Start simple and then adapt your plan as you get a better feel for how it works.
- Build your plan around the lowest dependable income. Comb through your records and pick the lowest income month from the past year. It may be a bit painful, but it’s a useful calibration, one that could save you from more serious financial trouble down the road. Build your initial budget so that all your essential spending fits within this number. It may mean cutting back, but it’s smarter to rework your finances now rather than after you’ve fallen behind. If your income is consistently below this amount, you’ll likely have to find additional income or find ways to cut spending.
- Prioritize essential bills and due dates. In your first pass, figure out how you’ll pay for just the bills you absolutely have to pay each month. In your simplest plan, these would all get paid out of that lowest monthly income you calculated above. If you know your income will be lumpy, consider building up a small “income smoothing” buffer so that you can pull from it as needed to cover differences in timing. For example, you might spend a little less than you bring in during the months when you can afford to, in order to save up for future months.
- Set aside money for upcoming expenses when a larger check arrives. When you receive a paycheck, withdraw what you need and use the rest to build your income smoothing buffer. You can use this money to pay for expenses that fall short in a slow month. Program yourself to react to bigger paychecks by building buffers for the months when you won’t have quite enough to cover expenses. Consider setting up a separate account to put this excess money into so you’re not ever tempted to touch it.
- Review and adjust your plan when income changes. The plan you make today is based on the best information you currently have. But in many cases, your income may stabilize, or you may find a more efficient way to organize your budget. Take advantage of these changes by reviewing your budget occasionally and making adjustments as needed. The key is to make changes thoughtfully so that you continue optimizing for your ultimate goal of financial stability and debt freedom, and not get sidetracked by every impulse.
The first step you can take today is to look over your past 12 months of income and identify the lowest month. This will be your new baseline. It will likely take some effort to carve your budget down to fit within this number, but doing so will set you up for long-term success. You’ll be able to use stronger months to build up a financial buffer that will help you even out any hiccups that come from unpredictable times and amounts.