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The Best Way to Budget When Your Income Fluctuates

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Photo: Viktoriia Hnatiuk (Shutterstock)

When you’re a player in the gig economy, budgeting can be tough. However, a budget is most important for anyone working with an irregular income. Even if you don’t consider yourself living paycheck to paycheck, it’s a challenge to craft and stick to a budget when you don’t have a predictable salary to base your calculations around. So how do you get started on your perfect budget when the amount you earn keeps fluctuating? Here are our tips for creating a budget when your income varies month to month.

Start tracking your income and expenses

The first step to creating a budget is to get estimates for the numbers you’re going to be working with. Go through your bank statements and figure out six months’ worth of income and expenses. From there, you can simply divide the total by six to determine your average income and expenses per month. However, that average number is most useful for people with steady income streams. Read on to keep adapting your budget to your fluctuating income.

Estimate your lowest monthly income

After finding your average income and expenses, figure out the most barebones version of your budget. How much do you need to cover your essentials? It’s important to conservatively estimate this number, so you can pay for your necessities even on months where you earn far less than your average income. This way, you’ll know how much you need saved up to get your through leaner months.

Base your budget around percentages

When the amount that you’re earning changes, it doesn’t make sense to choose an arbitrary number to save each month. Instead, determine a percentage of your income that you can afford to set aside. This way, the amount you save will fluctuate in proportion to how much you’re making.

Create a “salary” for yourself

Since no one company is setting your salary, consider setting one for yourself. Your average monthly expenses is a good starting number, and you can negotiate with yourself from there.

A pseudo-salary comes in handy if you wanted to try out a zero-sum budget. With this budget, your goal is to make your income and expenses match exactly each month (so you have zero dollars left over). An important hack here is that you’re treating your savings as expenses.

For example, let’s say your monthly expenses (rent, groceries, gas, etc.) average out to $3,000. Consider your salary to be $3,000. To operate under a zero-sum budget, you would take steps to ensure that you always have $3,000 available to cover expenses. So during months when you make over $3,000, you’ll set aside the surplus into your savings. And during months when you bring in less than $3,000, you’ll be able to pull from your savings to bring your salary up to $3,000.

Prioritize your emergency fund

We’ve previously covered the importance of building your emergency fund. The common guideline for your emergency or “rainy day” fund is saving enough to cover your expenses for three to six months. However, this rule tends to take on more importance when your source of income is irregular. Don’t stop saving just because you hit that shiny six-month mark.

An emergency fund is a crucial source of security for anyone with a fluctuating income. You never know when you might get stuck in a low-income period for longer than expected or lose an income source altogether. It’s important to make sure you have enough funds set aside to cover the essentials for when the unexpected happens.

It can be challenging to budget when your income fluctuates, so give yourself the grace to try multiple strategies while you figure out what works for you.

   

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