Simple Balance

Budgeting

How to budget with irregular income

When your pay changes from month to month, from freelance work, tips or commission, plan around your lowest month and the money you already have.

5 min readUpdated

A lot of budgeting advice assumes the same paycheck lands on the same day every month. If you freelance, work for tips or commission, run a small business, or get paid every other week, your pay doesn’t work that way. You can still budget. You just plan up from your worst month instead of down from your average one.

Why it matters

Budgeting from your average month leaves you short in the slow months. Say you earned $3,000 one month and $5,000 the next. Planning to spend $4,000 works in the good month and falls short in the bad one. The bad month is the one where spending ends up on a credit card.

Two charts of the same two months: a slow month that brings in $3,000 and a good month that brings in $5,000. A dashed line in each shows the plan. In the first, the plan is the average, $4,000 a month, and the slow month’s bar stops below it, $1,000 short. In the second, the plan is the floor, $3,000 a month. The slow month’s bar reaches it exactly, with a check mark, and the good month’s bar rises $2,000 past it, marked as going to the cushion.The averagePlan $4,000$3,000Slow$5,000GoodShort−$1,000The floorPlan $3,000$3,000Slow$5,000GoodCushion+$2,000
Budget from your average and the slow month comes up $1,000 short. Budget from your floor, your lowest month, and both months are covered, and the good month’s extra $2,000 can go to your cushion.

Good months can disappear, too. Without a plan, a big month feels like a raise and gets spent like one. Then a slow month comes and there’s nothing set aside.

Taxes can be a surprise. If nobody takes tax out of what you’re paid, as with most freelance work, part of every payment isn’t yours to spend.

How to do it

1. Find your floor

Look at the last six months and find the month you earned the least. That’s your floor, the amount you can count on. Penn State Extension suggests using exactly that number as your expected income.

2. Make a bare-bones budget that fits under it

List rent, utilities, groceries, transportation, insurance and minimum debt payments. These essentials should fit inside your lowest month. If they don’t, work on that first, because no budgeting method can fix it.

3. Rank everything else

Write down what gets money next, in order. For example: a cushion of savings, then extra debt payments, then the fun stuff. In a good month you get further down the list. In a slow month you stop sooner, and you already know where.

4. Set aside money for taxes first

If you work for yourself, there’s no employer taking tax out for you. If you expect to owe $1,000 or more when you file, the IRS generally wants you to pay estimated tax during the year, in four payments. Put part of every payment into a separate account before you budget the rest. How much depends on where you live and how much you earn, so it’s worth asking a tax preparer once.

5. Build a cushion, then budget from last month

Penn State Extension suggests an emergency fund of at least one to three months of your average income. It also suggests keeping the extra from bigger paychecks as a cushion for the smaller ones. Once your cushion covers a month of spending, you can budget each month from what you earned the month before. You always know the amount before the month starts, because the money is already in the bank. Getting there usually takes a few months of saving extra from the good ones.

6. If you’re paid every two weeks

Every two weeks works out to 26 paychecks a year. So in most years, two months have three paydays instead of two. Budget each month on two paychecks, and treat the third as extra. Put it toward savings, a debt, or your cushion.

A strip of the twelve months, January to December, with a block for each payday. Every month has two blocks, 24 in all, and a dashed line across the top of the second marks what to budget on. January and July each have a third block above the line, labeled extra, which makes 26 paychecks in the year.26 paychecks a yearTwo a month makes 24, so two are extraJExtraFMAMJJExtraASONDBudget on two
One example year, paid every other Friday. Budget each month on two paychecks. Two months get a third one, and that one is extra.

How to do it in Simple Balance

Record income as it comes in

Each payment is a Deposit with an income category, like Freelance or Tips. If you’re paid on a schedule, set it up once on Recurring. It can repeat every two weeks as well as every month. If the amount changes, leave it blank. On each payday, a row shows up in Staged for you to fill in with the real amount.

A list of transactions, newest first, each with who it was with, which account it was in, its category and its amount, all in dollars. Most are spending on groceries, a lunch, cinema tickets and a transit pass. One is a $750 freelance payment coming in, and one is $600 moved from checking to savings, which shows both accounts and no category.

The money in this picture is made up. It’s the real product, filled with example spending.

Budget from last month’s income

On Budgets, under Amount decided by, choose A share of the income before it. Then a rule like “groceries get 15% of what came in last month” sets the budget for you each month. It uses last month because a share of a month that’s still going would keep changing.

Decide what gets paid first

Give your most important budgets a Funded first number. Lower numbers go first. The Budgets page then shows how much of each budget the month’s income covers, filling them in your order until the money runs out. Put rent and groceries first, and in a slow month you’ll see exactly which budgets didn’t get covered.

The budgets screen: a form for setting one, with fields for the category, the amount and how it's decided, the currency, a start date and an optional end date, an optional savings goal and which budget gets funded first, and a checkbox for carrying what's left into next month. Below it, the list of standing budgets begins with $200 a month for dining out.

The money in this picture is made up. It’s the real product, filled with example spending.

Let a budget follow your history

Choose What the last few periods spent under Amount decided by, and the budget becomes the average of your last few months. That suits spending that rises and falls with your income.

Look ahead

The What happens next panel on Budgets projects your balances month by month. It starts from what your accounts hold today and adds your recurring transactions and what you usually earn and spend. None of it has happened yet. It’s a picture of where things are headed if nothing changes.

Saving goals, automatic amounts and the forecast in the docs explains each of these in more detail.

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