How to budget with unstable income

Having an income that fluctuates can sometimes make it tricky to manage your day-to-day finances. If your job has irregular hours, you rely on commissions or tips, or you’re a small business owner, budgeting can come with some extra challenges. However, understanding your income history and basic expenses, establishing a buffer, and carefully tracking your expenses are a few ways you can manage your money effectively.^[1]  

7 ways to budget if your income fluctuates month to month 

Budgeting on a fluctuating income may require a little extra work, but it's still possible to meet your financial goals and protect yourself from unexpected changes to your income and expenses. Here are some tips on how to budget when your income varies. 

1. Determine your baseline monthly income 

While you may not be able to control the fluctuations in your earnings, consider whether there's a minimum amount you can count on earning on a consistent basis.   

To see if this is possible, take a look at your monthly earnings over the past year. If your income doesn't fluctuate too much, you could simply calculate the average as your baseline. Otherwise, it may be more sensible to use your lowest-earning month as your benchmark.^[2] 

2. List your basic expenses 

With no way of knowing what your earnings will be from one month to the next, it's important to make sure you always have your non-negotiable expenses covered, at the very least. Some examples of necessary costs include:  

• Rent or mortgage payment 

• Utilities 

• Phone bill 

• Insurance premiums 

• Groceries 

• Debt obligations 

• Transportation (such as fuel, train tickets, or tolls) 

• Child care 

While some of these expenses are fixed, others may change from month to month. However, looking back several months can help you determine a reasonable outlay amount for each category.^[2] 

3. Evaluate other expenses 

In addition to your non-negotiable costs, you'll also want to assess other expenses where you might need to be more flexible. Examples include:  

• Other savings goals: When you have some extra cash flow, think about which savings objectives you want to prioritize. Examples may include retirement savings, educational savings for a child, a home or vehicle down payment fund, an upcoming vacation, or home renovations. 

• Additional debt payments: If you have high-interest debt you want to eliminate more quickly, consider how much you want to allocate during higher-earning months.  

• Lifestyle expenses: These may include streaming subscriptions, dining out, live entertainment, travel, and other big-ticket purchases.  

Ordering all of your negotiable expenses based on how important they are to you can make it easier for you to determine where to put your extra cash when you have it.^[2] 

4. Track your expenses 

Using past income and spending data can help you plan for the future, but it's still crucial that you track your spending to understand whether your forecasts are realistic.   

Tracking your expenses once or twice a week can tell you whether you're in line with your spending goals, or if you need to make further adjustments. This process can be particularly important if your irregular income is a recent development and you're not used to it yet. ^[2] 

5. Look for ways to minimize your costs 

Even if your baseline income is enough to cover your necessary expenses plus some, it's still worth looking for opportunities to cut back on your expenses. This may even be possible with some of your non-negotiable costs.^[2]   

Here are a handful of examples to consider:  

• Share subscriptions. Whether it's a streaming subscription or a retail membership, consider sharing some or all of your subscriptions with friends or family members to reduce your monthly or annual expenses. Before setting up your account, make sure the service provider allows account sharing. 

• Buy generic brands. Whenever possible, consider buying generic brands over name brands. This can help you save on groceries, over-the-counter medications, clothing, and more. 

• Evaluate your insurance. If it's been a while since you've shopped around for auto or homeowners insurance, take some time to do so. Insurers often provide discounts to new customers, which could translate to hundreds or even thousands of dollars in annual savings.^[3]  

• Consolidate your debt. If you have high-interest debt, a debt consolidation loan could potentially give you a lower interest rate and possibly even a reduced monthly payment. It may also help you pay down your debt more quickly, freeing up that cash flow for other financial goals.^[4]    

6. Build up a buffer 

An emergency fund is an important part of any strong financial plan, but it's all the more critical for people living with unstable income. When you get a month with some excess cash flow, try to prioritize building up your savings buffer so you can cover shortfalls when they occur.   Having a robust emergency fund can also make it easier to manage bigger financial emergencies, such as home or car repairs, medical bills, or a short-term income adjustment.^[5]    

While many financial experts recommend building up three to six months' worth of basic expenses in your emergency fund, evaluate your situation to determine the right amount to save for you.^[6]   

Regardless of how you approach your financial buffer, it's a good idea to stash your savings in a high-yield savings account to take advantage of better interest rates.^[7]  

7. Revisit your budget regularly

Flexibility is the biggest part of setting up a budget with an uneven paycheck. While standard budgets rely on setting a goal and hitting it every month, budgets made for irregular incomes need to be reviewed and updated throughout the year to align with your changing work situation.  

Ideally, your expenses should remain the same. But when you have budget surpluses or deficits from one week to the next, you can assess where you're falling short and adjust accordingly.   

It's also important to reevaluate your income to determine if you're experiencing an upward or downward trend in your earnings. If you start seeing months where your income is below your baseline, you may need to cut back further. On the other hand, if you're regularly earning more than you expected, you may be able to comfortably expand your savings, debt payoff, and lifestyle expenses.^[2]  

3 budgeting methods to try 

Using an established budgeting method can save you some time and energy as you take steps to hone your budget. Some even offer some flexibility to customize your budget to your liking. Here are some budgeting approaches you can try. 

1. Zero-based budget 

With a zero-based budget, you're allocating every single dollar you earn. Once you meet your spending limit for a particular expense category, you'll stop spending in that area unless you're willing to pull money from other categories.   

A zero-based budget is worth considering if you want full control over where your money goes, and you're willing to spend extra time tracking and categorizing your expenses. 

2. 50/30/20 budget 

This budgeting approach allocates your money to just three categories. The idea is that 50% of your monthly income goes toward necessary expenses, 30% toward your lifestyle, and 20% toward your financial goals, such as saving and paying down debt. However, you can adjust the proportions however you'd like based on your priorities.

Consider this option if you want a simpler approach to budgeting with less oversight on a monthly basis.^[8]  

3. Envelope system 

The envelope system is essentially a zero-based budget, but it goes one step further by restricting you to using cash only.   

Like the zero-based budgeting system, the envelope system has you divide your income into different spending categories, and you'll put cash in individual envelopes for each category. Once you've spent all your cash from one envelope, you can't spend any more money in that category unless you pull from another envelope.   

This option can be beneficial for people who have had trouble with overspending on credit cards in the past or who simply prefer to use cash. 

The bottom line 

Budgeting with fluctuating income may require a little more diligence, but it's certainly possible, especially if you're taking steps to increase your income over time. Regardless of which steps you take, it's important to fully understand your financial situation and goals, so it can inform your budgeting approach.

As you look for opportunities to save money, consider whether a debt consolidation loan or a high-yield savings account with LendingClub Bank can make it easier to achieve your objectives.     

1. Consumer Financial Protection Bureau. “Financial well-being: What it means and how to help.” 

2. Consumer Financial Protection Bureau. “Budgeting: How to create a budget and stick with it.” 

3. Insurance Information Institute. “How to save money on car insurance.” 

4. Consumer Financial Protection Bureau. “What is the difference between credit counseling and debt settlement, debt consolidation, or credit repair?” 

5. Consumer Financial Protection Bureau. “An essential guide to building an emergency fund.” 

6. CNBC. “3 to 6 months of savings might be ‘tried and true wisdom’ but this expert has advice if you’re living paycheck-to-paycheck.” 

7. Consumer Financial Protection Bureau. “Should I get a checking account that pays interest?” 

8. Consumer Financial Protection Bureau. “Learning about budgets.”