Budgeting with Irregular Income

Do you have an irregular income? Maybe you work in a commission-based industry or you started a new business that’s still working on building a client base. Whatever the reason, your earnings might vary from month to month.

Creating a budget is crucial when you have an irregular income. When your earnings are inconsistent, a budget can help you make sure you’re on track to pay your bills and build your savings. If you’d like to create a budget, here are a few tips to get you started.

Determine Your Lowest Monthly Income

First, track your monthly earnings for the past year. You’ll want to start building your budget based on the month you’d earned the least amount of income. This will help ensure that your budget stays on track during leaner months.

Factor in the Essentials First

Once you have an estimate of the least amount of money you could potentially make in any given month, you can build your budget. It should account for the essentials – what you need to pay for each month to live. An average budget will typically encompass five categories.

1. Housing: Be sure to factor in your rent or mortgage payment, as well as any additional payments for your property, such as a home equity loan.
2. Food: This includes groceries each month, but not takeout and restaurant bills (you can add those to entertainment, which is separate from your essentials.)
3. Utilities: This includes water, electricity, heating fuel, Internet, and cellphone service.
4. Transportation: This includes auto payments and maintenance costs, public transportation expenses, and fuel.
5. Insurance: This includes all types of insurance, such as health, life, auto, and long-term care.

The amount you spend in these categories will sometimes vary. For instance, your electric bills may fluctuate due to the season. Find the average monthly cost of each bill over the past year to give you a more accurate figure.

Record your expenses in a spreadsheet and determine the average of the five categories. Use that average as your baseline budget – or the minimum amount you need to cover with your income each month.

Once you’ve calculated the amount you’ll need to spend on required expenses each month, you can add additional categories, such as entertainment or travel to your spreadsheet. Track how much you’ve spent on those categories the past year, as well. You can cut spending in these categories first during months when your income is lower.

Change Your Budget as Necessary

Reassess where you stand each month. You can ask yourself these questions.

• Is my monthly income higher than my minimum monthly budget? If it is, then you should be able to cover your basic monthly expenses and put extra money in savings.
• Is my monthly income about the same as my minimum monthly budget? If this is the case, you can try cutting costs, such as by finding a less-expensive cellphone plan or winterizing your home during the colder months to give you more wiggle room.
• Is my monthly income lower than my minimum monthly budget? If you find that you aren’t earning enough to cover your minimum expenses, you’ll need to find a way to supplement your irregular income or cut back on your costs. You can try adding a side hustle or identify ways to increase earnings in your current position during the financially thin months. You may not always be able to anticipate a drop in income. That’s why it’s important to get to a place where you’re able to save money from more lucrative months to help cushion the months when your income is lower.

Plan Ahead

Your higher-earning months should allow you to put enough money aside to cover the difference in the lean months. During months where you only earn a little more than your minimum expenses, continue to earmark money for your savings. By contributing each month, you create financial discipline, which can pay off in the long run.

During months when you make more than your minimum monthly income, you may feel tempted to spend your extra money on entertainment, dining out, or traveling. Resist that urge and save the money instead. Looking out for your long-term security can be more rewarding than buying clothes you saw while window shopping or grabbing takeout after work.

Consider a Cash Rewards Credit Card

One way to pad your monthly budget is by earning cash rewards with your purchases. PSECU’s Founder’s Card offers rewards with no category restrictions. Earn 2%* or 1.5% cash rewards on every purchase you make. Visit psecu.com/founders to learn more.

For other tips on making your money work for you, visit our WalletWorks page.

*You can earn 1.5% cash rewards on purchases. You can earn 2% cash rewards on purchases if you maintain a PSECU checking account and qualifying monthly direct deposit(s) of at least $500. See the Visa^® Founder’s Card and Visa^® Alumni Rewards Card Rewards Program Terms and Conditions for full details.