6 Ways to Budget on an Unpredictable Income

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With the rise of the gig-economy, side-hustles, and part-time freelancers, there are more and more people living month-to-month on a wildly unpredictable income. Those of us who can’t predict how much money we will bring in each month are at a higher risk when it comes to unexpected expenses.

It’s dangerous for us to blindly follow finance advice from those lucky enough to have a salary. Unfortunately, a fluctuating income means extra steps must be taken in order to ensure our safety, let alone our wealth. This also means it can be especially difficult to budget on an unpredictable income.

Unpredictable income doesn’t only apply to part-time workers

It’s easy to assume that the stress of budgeting on an unpredictable income belongs to those who don’t have much choice in the matter. Perhaps university students or working parents who take jobs on the side are the first to come to mind.

However, it reaches much further than this, especially in recent years. Many people work in fields that simply don’t have consistent income as an option, such as construction workers or trades workers. There are also a variety of commission workers such as artists, consultants, or salespeople whose income depends on the consistency of paying customers. Permanent employees or contract workers can even find themselves with an impossible-to-predict income if they have hours that fluctuate!

Even those lucky enough to have a salary job are often forced into the position of finding a side hustle in order to make ends meet. Although these people can work around a base income, the second income can confuse things. This is especially difficult if the second income is absolutely necessary in order to pay bills!

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Managing an irregular income is much harder for those struggling to get by

It’s easy to simply consider your side hustle income as separate from your income and budget accordingly. A lot of people with side hustles choose to do this, using all their “extra” money earned for a specific saving goal or even as some spending money. If this isn’t an option, one is forced to attempt to add side hustle income into their monthly budget to ensure their bills are paid. This can obviously complicate things! 

Although the confusion behind budgeting on an unpredictable income is always frustrating, once it’s applied to the lives of those in poverty, it becomes terrifying. Especially with recent studies showing links between income fluctuation and various health risks! Not only do bills need to be paid, but the stress of paying them wears us down over time.

Is it really that hard to budget on an unpredictable income?

Yes. The general consensus in the personal finance community is that the first thing you need when sitting down to create a budget is an income to work off of. When that number is up in the air, it can feel pointless to begin the process in the first place.

Although difficult, it is not impossible to create a functional, personalized budget on an inconsistent income. So please, don’t lose hope. Those of us bringing in different pay-checks each month are arguably bound to benefit the most from a concise budget. Even if that budget looks a little abnormal!

I’ve had plenty of experience with budgeting on an unpredictable income

I’ve had an irregular income for most of my working life. My entire adulthood has consisted of bizarre, fleeting job opportunities, especially before I began working for MAG. In fact, this is likely the most consistent income I’ve ever had because I can determine a monthly minimum. But even then, the amount of work I submit ultimately comes down to me and my life circumstances!

The stress of never knowing how much money is coming in at the end of the month can be taxing, especially when you’re trying to arrange a monthly budget. I’ve definitely made some errors when it comes to my budget, which I hope some readers can learn from. But through trial and error, I’ve found a way to ensure some form of stability in my budget!

Play it safe

The most important over-ruling paradigm when budgeting on an unpredictable income is this: play it safe.

We have less control over our finances than is ideal. Because of this, I’ve learned to make my budget as safe as possible on paper, in case things go wrong in real life. Most budgets account for unexpected expenses, but this category has to be even more intense if you’re budgeting on an inconsistent income. Things are already out of control. We want to avoid losing even more control at all costs!

The survival number

This is my suggested first step for anyone trying to create a budget on an unpredictable income, or even for anyone with an especially tight budget! I’ve used what I call a survival number in my budgets for years. To be frank, this strategy has saved my ass a couple times.

Essentially, your survival number encompasses all your minimum monthly expenses. This means your bills, but it should also include food, prescription medicine, and transit expenses. Your survival number should be the very least amount of money you would need in order to get through the month (hence the term survival). 

This may not necessarily match up to your budget! For example, I have $150 budgeted for food each month, but I’ve only included $100 of food money in my survival number calculations. If I needed to, I could scrape together a month’s worth of food with only $100. This number should be based on the bare minimum, not preference. For this reason, the number itself varies drastically! 

My survival number looks like this:

$700 (rent) + $100 (food) + $90 (transit fees) + $50 (prescription medication) + $60 (phone bill) = $1,000 

When funds are limited, it’s smart to base your calculations around your survival number. This way, no matter how things fluctuate, your safety is taken care of! 

Go based of a predetermined minimum income

In an ideal situation, your minimum monthly income should be equal to or higher than your survival number. However, sometimes even that is too much to ask for! It’s more important to be realistic with your minimum income. If you end up bringing in even less than your predetermined worst-case scenario, then the whole system uproots. 

The best way to be sure of your minimum monthly income is to look at your employment history and find your worst month. For a freelancer, base this on the average payment of merely a couple of jobs, to be safe. On a month where life got in the way and you weren’t able to work as much as usual, how much did you end up bringing in?

Even my own predetermined minimum income ($850) is less than my survival number ($1,000). But since I’m a student and I’ve taken out government loans, I can use that to top me off at the end of each month. There wasn’t very much leftover from my loans once tuition was paid, but I can definitely add $150 to my bank account if I only make my minimum income one month.

If you have a savings account or are a student like me, this strategy is feasible. However, as I said, it’s best to make at least your survival number each month. 

Your budget on an unpredictable income

Now that you have these two numbers to work with, it’s time to actually start constructing your monthly budget. Remember, there are some extra steps to consider when budgeting on an unpredictable income! 

Prioritize budgeting categories

Often you’ll see budgeting charts that include categories such as “entertainment” or “spending money.” This is, of course, fair, considering we as humans deserve to splurge. But as someone living in poverty, seeing these categories mostly just instill a jealous rage. Similarly, if budgeting on an irregular income, these categories are a luxury many of us can’t afford. At least not consistently! 

If the month ahead is likely to be especially tight, it’s best to simply use your survival number, instead of creating categories. For me, I’ll see the income at $1,000 and subtract my survival number: $1,000. There, budgeting done. Again, leaving zero wiggle room is like having a money-monster sitting on my chest at all hours of the day. But this ensures my safety and my bills are paid, which is sometimes the best I can do. 

If you have an expected income that’s slightly higher than your survival number, then you can actually budget. Congratulations! In this case, though, be sure to take care of the essentials first. After subtracting monthly bills, create a realistic category for food, medical bills (if applicable), and transportation.

“Spending money” is a risky thing to include when you aren’t sure of your income. Perhaps it’s better to put away any extra money you have at the end of the month, once you’ve paid off bills and purchased groceries. 

Revisit your budget throughout the month

As your income is irregular, so is your budget. As the month goes on you may have a better understanding of what you’ll make, or what you need to spend. Unexpected expenses might also come up, which may lead to you reverting to your survival number. 

Although many make budgeting a strictly once-a-month task, this isn’t usually an option when your finances are so fickle. In this situation, it’s a good idea to take a look at your budget more frequently, and adjust it if need be. I personally dive into my budget for at least thirty minutes every Tuesday! 

Create a (generous) budget buffer when you can

Ideally, your minimum income should be 10% higher than your survival number. On top of that, once you’re bringing in more than your minimum income, a buffer in your budget is important! If you’re budgeting based on a higher income, leave about 10% of that income unbudgeted. In other words, pretend that section of your income doesn’t exist at all. 

If you suddenly reach the end of the month and are bringing in less than you budgeted for, this buffer will help protect you from over-spending. And if you do bring in what you expected, then maybe this buffer can be used toward your budget in the following month. It can also be used to cover unexpected expenses as they come up. Just in case!

I suppose what I’m trying to say is this: expect the worst. It’s easy to spend everything you make, especially when finances are so tight. But when budgeting on an unpredictable income, it’s always most important to consider your safety.

As we well know, life is full of financial curveballs. When budgeting on an unpredictable income, these curveballs can be life-altering. The right precautions are essential in order to maintain financial stability on an inconsistent income! 

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About Author

A professional writing student at York University, Toronto. A newbie in the world of personal finance, but writing with MAG I've got the perfect teacher! Literary nerd, writer, and coffee enthusiast.

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