Irregular income budgeting

What It Means

Irregular income budgetingBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more is planning your spending and saving when your pay changes from month to month, as it can with freelanceFreelancingWorking for yourself, selling your skills to different clients by the project or the hour instead of holding a long-term job with one employer. See more fees, commissions, tips, gig workGig workShort-term, on-demand jobs or sales, often found through an app or website, such as rides, deliveries, errands or selling goods; the IRS treats the pay as taxable income. See more or seasonal jobs. Instead of one fixed paycheck, you plan around a range: what a lean month brings, what an average month brings, and when in the year each tends to come. The Consumer Financial Protection Bureau notes that a standard cash flowCash flowThe money coming in and going out over a period; positive cash flow means more came in than went out, and negative means the reverse. See more budget can be hard to use with sporadic or seasonal income, and its Your Money, Your Goals toolkit adds an annual planner for mapping the ups and downs across a year.

How It Sounds at Home

• "Summer's my busy season, so I live off it in winter."
• "I budget like every month is a slow month."
• "Big invoice came in, half of it goes straight to the lean-month fund."

The Breakdown

How to work it out

1. Write down what you took home in each of the last several months. The CFPB suggests tracking at least one month of income and spending before you build a cash flow budget.
2. Add up what one month of bills and basics costs you.
3. Find your average month and your lowest month.
4. Count the months that fell short of your bills, and how far short they were in total.
5. Compare that with the extra from the good months, which is the money to set aside for the lean ones.

Worked example. A freelance designer's last six months, against $3,300 of monthly bills and basics (made-up numbers):

The average month is about $4,033, which looks comfortable, but three of the six months fell short, by $1,200 in all.

What the result means. If your monthly bills fit under your lowest month, every month is covered as it comes. When they don't, as here, the lean months have to lean on money saved from the good ones. The good months brought in $5,600 more than the bills, enough to cover the $1,200 with $4,400 left for savings, but only if that extra was set aside when it arrived instead of spent. Month 1 came before any good month, which is why a starting cushion helps.

Good to Know

Three tools in the Consumer Financial Protection Bureau's Your Money, Your Goals toolkit fit this kind of budget: an income and benefitsBenefits packageEverything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year. See more tracker for recording what comes in, an annual planner for seeing which months tend to run high or low and when yearly or quarterly bills fall, and a weekly cash flow budget that starts from the money you have now. When bills and income don't line up, the CFPB suggests calling creditors about changing due dates or splitting a large periodic bill into smaller payments. If your pay arrives with no tax withheld, ask a tax professional how much to set aside for it.

Related Terms and Categories

• Gig work

  Short-term, on-demand jobs or sales, often found through an app or website, such as rides, deliveries, errands or selling goods; the IRS treats the pay as taxable income.

• Freelancing

  Working for yourself, selling your skills to different clients by the project or the hour instead of holding a long-term job with one employer.

• Cash flow

  The money coming in and going out over a period; positive cash flow means more came in than went out, and negative means the reverse.

• Sinking fund

  Money set aside in small, regular amounts for a known future cost, so the bill doesn't land on a single paycheck.

• Emergency fund

  Money set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly.

Household money and budgeting