6 Ways To Set Up a Budget That Works Even When Your Income Changes Weekly
Anywhere from 25% to 43% of Americans are gig workers, which means many of these same people have fluctuating earnings. Some also have full-time jobs that keep their incomes consistent, but not all. Even those with regular jobs may work part-time or earn more (or less) during certain periods.
If you’re someone whose income changes fairly regularly, the thought of budgeting might be even more frustrating than it is for most. After all, how are you supposed to set a proper budget when you can’t guarantee your weekly income?
Here are a few key ways.
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Use Your Lowest Earnings To Budget
Depending on your work, your earnings could fluctuate by hundreds of dollars a week — possibly more. That’s significant, no matter who you are. If you’re trying to create a household budget, do so based on your lowest-earning months (or weeks) rather than your highest.
“Budgeting can be difficult. It becomes more challenging when [your] pay isn’t a consistent amount, from pay period to pay period,” said Elizabeth Rice, prosperity planning manager at Goodwill Industries of Central Florida. “This is where a base budget is best used. You want to determine the lowest expected pay versus pay periods that have higher pay.”
Rice suggested averaging out your earnings over three months and using that as your base income.
For example:
Month 1 earnings: $1,500
Month 2 earnings: $1,200
Month 1 earnings: $1,700
Your monthly average is $1,467, so your budget should be based on that.
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Calculate Your Essential Expenses
Figure out how much your essential expenses cost each month. This includes things like:
Rent/mortgage
Food
Utilities
Monthly debt payments (like credit cards or student loans)
Insurance premiums
You can include non-essentials in your budget later, but focus on your needs first. Plan around those so that you’re always covered at base.
Build an Emergency Fund
Since you’re living on the lower end of your earnings, you might find yourself with extra cash some weeks. Don’t increase your spending. Rather, set it aside for when you really need it.
“Inconsistent income requires a buffer, essentially an emergency fund for your pay,” said Hillary Seiler, a certified financial educator and national certified credit counselor, as well as the founder of Financial Footwork. “Save at least two to three months of expenses and keep it in a high-yield savings account to protect your financial life when income dips.”
Create 'Paychecks' for Yourself
Just because you don’t earn a consistent weekly amount doesn’t mean you have to live in financial uncertainty. Naturally, it’s better for your peace of mind if you have a system in place to prevent that.
One option is to budget as though you’re earning regular paychecks — even when you’re not.
“Build a ‘paycheck’ system,” said Seiler. “Once you have your monthly budget set, begin pooling your income and pay yourself a fixed weekly or biweekly amount to create stability.”
Say you earn an average of $3,000 (net) a month. That’s roughly $750 a week or $1,500 every two weeks. These are your “paychecks” even if some weeks are higher than others.
Have Overflow Savings for Lower-Earning Months
An emergency fund is a good start, but you might need more financial security than that. This comes in the form of an overflow savings account.
“One important concept when budgeting with an irregular income is that you have to really know your expenses and not just a ‘perfect month’ but an ‘in this month I will spend this much’ down-to-the-dollar-type budget,” said Aaron Ulrich, owner of Integra Financial Planning, LLC. “Then, when your income is high, you should set aside a savings account that can hold the extra money until a month or week arrives when you don't have quite enough to cover those expenses.”
Review Your Budget Regularly
Even with a regular job, you should be looking over your budget every few months or whenever major life changes occur. If your earnings change weekly, you should do this more frequently.
“Be flexible in your budgeting, reviewing and revising as needed, preferably on a weekly basis,” said Rice.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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