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How to Budget on an Irregular Income

How to Budget on an Irregular Income
Rebecca Safier
Rebecca SafierUpdated May 8, 2025
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If you’re an independent contractor, gig worker, or small business owner, your income probably varies from month to month. While budgeting on an unpredictable income can be tricky, it’s worth figuring out. By creating a budget, you can make sure you’re able to cover your bills while funneling money into savings. If you’re eager to take control of your finances, here are some tips onr how to budget on an irregular income. 

Irregular Income Definition

An irregular income is one that varies from month to month (or even week to week). If you’re a freelancer, gig worker, independent contractor, part-time worker, or small business owner, for example, your income probably fluctuates over time. Seasonal workers will especially see big changes in their earnings. A farmer, for instance, may make significantly more in the summer months than during the winter. A ski instructor will have the opposite experience. An irregular income stands in contrast to a regular income with fixed paychecks. Full-time employees, for instance, typically have the same paycheck on direct deposit into their bank accounts regularly, except for occasional bonuses or commissions. 

How to Budget With an Irregular Income

Learning how to budget with a varied income is critical, since it will help you meet your monthly obligations. Plus, it can help you set aside savings that you can use to get through a tough time, pay your estimated state and federal taxes, and work toward upcoming goals like going on vacation or making a down payment on a home. Here are the basic steps involved.

Establishing Baseline Monthly Income

To create a budget for an irregular income, you’ll first need to establish your baseline monthly income. This means adding up the amount you made over the past six or 12 months to get an average monthly figure. Let’s say you made $45,000 over the past 12 months. Divide that sum by 12 and you get an average monthly income of $3,750. In reality, you probably made more in some months and less in other months. But this ballpark number will give you a sense of how much you have to pay your bills, funnel into savings, and spend on other expenses. 

Adding Up Fixed Expenses

Next up, you’ll need to take some time to add up your fixed expenses from month to month. These are the bills and other essential costs that you have to pay. They might include: 
  • Rent or mortgage
  • Utilities, like gas and electric 
  • Internet and cell phone service 
  • Homeowners insurance 
  • Car loan, auto insurance, and gas 
  • Student loans 
  • Credit card payments 
  • Groceries 
If some expenses are higher in certain months than others (for instance, your gas bill might be significantly higher in the winter), you may want to add six months’ worth of bills and divide by the number of months to get an average monthly cost. 

Adding Up Non-Essential Expenses

Now it’s time to add up your discretionary spending — these are expenses you could live without if you had to. Some examples include: 
  • Entertainment
  • Restaurants
  • Travel 
  • Hobbies/sports
  • Subscription services
  • Gym memberships 
Non-essential spending often fluctuates from month to month, so it’s a good idea to add up your spending in these categories for the past six or 12 months and then come up with a monthly average.While your fixed expenses represent bills that you have to pay, your variable expenses are ones that would be nice to have after meeting your other financial obligations. If you discover you’re overspending in this category, you might consider cutting expenses to pay off debts or boost your savings. 

Create a Zero-Based Budget 

One popular method of budgeting is zero-based budgeting. This doesn’t mean spending every dollar you earn until you have zero dollars left. Instead, it means assigning a purpose to each and every dollar you earn each month. Some of your money will go toward bills and some will go into savings. Once you’ve covered your essential categories, you can put the leftover amount toward savings or non-essential expenses. Another simple budgeting approach you might consider is the 50/30/20 rule. With this strategy, you put 50% of your after-tax income toward bills and other essentials, 20% toward savings and debt repayment (beyond the minimum), and the remaining 30% toward your “wants,” or discretionary purchases.

Using Expenses to Calculate an Emergency Fund

Building an emergency fund is critical, especially if you have an irregular income. If you’re a freelancer, for example, you never know if a big client might disappear and leave you in the lurch. An emergency fund can help you weather a dip in your income while you search for new clients. Since you’ve already estimated your monthly expenses, you can use these amounts to determine how much you’d need to cover your living expenses for three to six months if you were to lose your income. Some financial experts recommend that those who are self-employed, work seasonally, and/or have financial dependents sock away closer to 12 months’ worth of living expenses in a savings account earmarked for emergencies.You’re probably not going to hit that goal overnight, but small and steady transfers into your rainy day fund will add up over time. Once you reach your emergency savings goal, you’ll have the peace of mind that, should you lose your income or run into unexpected expenses (such as medical bills), you won't have to run up credit card debt that could take months, even years, to get out from under. 

Automating Saving 

When it comes to saving money, a “set it and forget it” approach is usually easiest. You can do this by opening a separate savings account (it can be at the same bank as your checking account or a different one) and setting up a recurring transfer from checking to savings on the same day each month. Since you’ve already estimated your average monthly income and expenses, you can determine how much you can afford to save each month without going into the red. Once you’ve hit your emergency fund goal, you might want to open other savings accounts to save for other short-term goals. Some savings accounts actually allow you to create separate savings “buckets” within the same account.If your earnings don’t have taxes taken out, you’ll also need to set aside money to pay your estimated quarterly taxes throughout the year. Putting this money into a separate account can ensure you don’t spend it and have enough to send to Uncle Sam come tax payment day. 

The Takeaway

Creating a budget when you have an irregular income requires figuring out how much, on average, you are earning and spending each month, then coming up with a plan for how you want to spend and save each month. Keep in mind that budgeting is typically not a one-and-done activity. It’s a good idea to go over your bank statements every few months to make sure your estimates are still in line with your actual earnings and spending, and to keep tabs on your savings progress. If you’re looking to earn more on your savings, Lantern by SoFi can help. With our online banking marketplace, it’s fast and easy to compare high-yield savings accounts based on APY, fees, and balance minimums. Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

How do you calculate irregular income?
What are the five examples of irregular income?
Will budgeting work if you have an irregular income?
Photo credit: iStock/Eva-Katalin
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About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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