How to Budget Irregular Income

Taking on side hustle work comes with plenty of perks, like creating your own schedule and earning extra income. Maybe you’ve started freelancing on the side, rideshare driving on nights and weekends, or selling real estate on commission. 

While earning extra cash is great, the flip side is that you don’t always know how much you’ll take home each month. That makes it difficult to budget and set savings goals for the future, whether you’re doing part-time gig work or have moved into full-time self employment. 

The good news is you can create a financial strategy that works even when your income fluctuates each month. 

Why Budgeting Irregular Income Feels So Difficult

Cyclical income can come with highs and lows. Maybe your rideshare gig gets a lot of business when it’s summer concert season, but drops when the weather gets cold. Or perhaps your freelance work slows when offices close during the holiday season. 

In addition to those highs and lows, you’re also responsible for paying self-employment taxes as an independent contractor. And if you don’t have a full-time position with benefits, you may also need to cover your own benefits like health insurance. If it sounds like a lot, it gets much easier when you learn how to manage your money in spite of those ebbs and flows.

7 Steps to Manage Your Irregular Income

#1: Calculate Your Baseline Monthly Expenses

The first step is to calculate the absolute minimum it takes to live each month. This includes things like: 

• Rent or mortgage payment
• Insurance
• Food
• Gas
• Child care
• Utilities
• Phone bills
• Student loan payments
• Credit card minimums
• Taxes

Don’t include things like savings or fun money yet – we’ll get to those numbers later.

#2: Create a Bare-Bones Budget

Next, create a minimum budget based on your lowest expected income. If you’ve had your side hustle for a year or longer, you have some good data to estimate what your slowest month typically looks like. Otherwise, create your best guess for a low-income month.

From there, create a monthly budget based on your essential expenses from step one. That baseline number can serve as your minimum income goal, because you know that’s the threshold needed to cover your minimum cost of living. 

#3: Set Savings Goals for Taxes, Savings, and Discretionary Spending

Once your bare bones budget is accounted for, make a plan for what you’ll do with income beyond those numbers. One strategy is to set percentages for three important categories: taxes, savings, and spending beyond your basic living expenses.

Start by estimating your federal and state income tax rate (including self-employment taxes, which cover Social Security and Medicare contributions). Then divide the remaining amount between savings and discretionary spending. 

#4: Build an Emergency Fund for Income Gaps

You’ve probably heard of an emergency fund, which is designed to cover unexpected expenses, sudden loss of income, and other times of hardship. But when you have irregular income, you may want to have an additional emergency fund that helps cover slower months. If you suddenly lose an income stream or a client is late paying an invoice, you’ll have a financial buffer to cover your baseline budget. 

#5: Automate Where Possible

Even if you typically don’t get paid on one specific day when you have a side hustle, consider using automatic transfers to stay on top of your goals each month. You can always pause them ahead of time if your income is lower than expected.

#6: Use High-Income Months Strategically

When you have a great month with your side hustle or freelance work, have a plan for how to use the extra money. If you originally said you’ll use 50% for discretionary spending but it seems like a lot, consider other areas to use the extra funds. Maybe you pre-pay large, one-time bills or fully fund your emergency accounts. Reflect on what financial priorities are coming up in your life and use extra income towards those goals. 

#7: Track Income Trends and Busy Seasons

The longer you earn income from side hustling or freelancing, the more data you have to help inform your budget. Track your monthly earnings through an app or spreadsheet so you can extract patterns. Compare months from different years to get a sense of when you’re busiest and have more income to work with and when things are slow and you’ll need to dip into savings. 

The Bottom Line

Taking on work as a side hustle or growing a business as a freelancer is exciting, especially when you first start earning extra cash. But in order to make the most of that money, you need a budget built around the ebbs and flows of irregular income.

Create a plan that helps you feel financially confident during your best months as well as your slow season.