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How to Create a Budget When Your Income Fluctuates (Plus 5 Best Budget Apps)

How to Create a Budget When Your Income Fluctuates

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Do you have an irregular income? You must be wondering how to create a budget when your income fluctuates.

When your income is unpredictable each month, planning can be challenging. But, the notion that only those with fixed pay can budget is misplaced.

Whether you’re a freelancer, work for hourly pay or commission, you can still budget wisely.

Stick with this guide to learn how.

How Does a Budget Differ When You Have an Irregular Income?

While those who have fixed earnings are confident of the amount of money to expect, irregular income earners don’t.

Therefore, the kind of budget you create is usually based on essentials. You avoid buying unnecessary stuff.

Why Is It Essential to Budget On an Irregular Income

Whether you earn a fixed or irregular income, budgeting is crucial. It becomes even more critical to budget when you don’t know what to expect of your next paycheck.

Benefits of Budgeting When Your Income Fluctuates

a. Take charge of your finances

A budget helps you to plan and avoid surprises when dealing with your finances. For instance, it allows you to plan for emergencies.

b.  Have a stable way of spending

A budget also helps you to avoid overexcitement or stress when spending. Why? If you earn a very high income one month, you might be tempted to go on a spending spree.

When your income drops the next month, you can get anxious about your future.

Therefore, to eliminate these, a budget helps you work with a fixed amount, whether you have highs or lows.

C. Pay off debt

In the long term, budgeting for irregular income helps you develop a good debt payment strategy.

Because the amount in your paycheck keeps changing, you’re forced to pay off debt faster.

d. Give yourself a bonus

When you work with a budget, the amount you pay yourself will be fixed per month. This plan means you can save the extra cash on the days you make more.

e. Get peace of mind

Imagine the peace you’d get knowing every month you have no shortages and your finances are in order. That’s how a budget cushions you when your pay fluctuates.

How Do You Budget for Irregular Income?

The key is to use tried and tested strategies. If you want to create a budget successfully, stick to a plan.

What Are the Guidelines for Budgeting with an Irregular Income?

a. Determine your lowest monthly income

Find out what is the lowest amount you make per month. 

How do you arrive at this number? Look through your records for the previous year and note the lowest pay you got in that period.

But, if you haven’t worked for long and don’t have records for a year, work with the available data.

This lowest income is what you should budget with. It is easier to add if you get an increase than deduct.

b. Itemize your expenses

When making this list, begin with the essential items. These include:

  • Food – How much do you spend on groceries?
  • House – Are you renting or paying a mortgage? Besides, consider all other expenses that come with a home, such as utilities.
  • Clothes – We’re not talking about the high-fashion items you buy on a shopping spree. No. Add the basic clothes expenditure.
  • Transport – What are your day-to-day expenses on gas? How much are the maintenance costs?

After the basic expenses, make a list of the other expenditure in order of priority. Things like insurance should start from here.

Remember, your list should also cover savings.

At the very end, be sure to add the fun stuff. Include entertainment activities like eating out or going to the movies.

c. Keep adjusting

For an irregular income earner, flexibility is a must. You have to keep tweaking your budget as your income changes.

For example, if your lowest income was $3,000 and in one month you make $4,000, the extra $1,000 should be included in the budget for that period.

Don’t worry about making too many changes. It’s the only way to stay on top of your finances. The extra cash means you save more or divert the money to another essential item on your budget.

d. Create an emergency fund

The rule of thumb is to have money that can cover at least three to six months of your expenses.

One way to do this is to allocate a certain percentage of your earnings to savings.

Another way could be to sell old items you no longer use and save up whatever you make.

When you have a fluctuating income, savings cushion you during your low months.

e. Stick to a salary 

An excellent way to earn a fixed pay when your income is unpredictable is always to pay yourself. It could be monthly. 

Every time money comes in, pay yourself a flat rate.

Not only does this remove the worry of a fluctuating income, but it also makes it easier to budget.

f. Pay bills in advance

Working with a fluctuating income can be messy when it’s time to pay bills, especially on your bad months.

An intelligent way to avoid falling behind is to pay ahead of time. For instance, you can pay the bills as they come instead of waiting for the month to end.

Still, you could split the payment periods. You might decide to pay your bills twice a month or weekly. 

This plan prevents your bills from piling up and stressing you out when you finally can’t afford to pay them.

g. Now, repeat

By now, you already have the steps to help you budget on an irregular income. For it to work, you have to do the whole process again and again.

How to Calculate Your Baseline When Budgeting with A Fluctuating Income

To determine your baseline as an irregular income earner, you need to create a list of essentials. These are items you can’t do without.

Some of the expenses like rent payment or mortgage are fixed, and you can itemize them confidently. 

But, stuff like electricity bills might change from one month to the next. So, only list what is genuinely crucial.

Then add up all these expenses. The total amount is the baseline income you need every month to survive. Derive your baseline income from this total.

Best Budget App for Irregular Income

Budgeting with a fluctuating income can be easy if you use apps. 

The advantage of using an app is that it automates the process. Also, you can try as many as you like. If one app doesn’t work for you, download another one.

Here are the best budget apps for variable income with your existing current account:

a. Emma

As a budgeting app, Emma gives you a social media feel. It tracks your budget and expenditure and categorizes them.

Emma combines data from your bank accounts, investments, and credit cards.

The app is flexible and allows you to set up a budgeted amount.

What’s more? Emma has a ‘Quests’ section where you can earn badges for things like referrals.

Still, you can view your spending information in bar charts so that you can compare different periods.

b. Yolt

Intelligently, Yolt gives you in-depth information about your spending habits. 

You get this by linking all your accounts, after which Yolt analyzes the data and provides helpful tips and feedback.

Like Emma, Yolt presents your data in graphs and charts, helping you see your spending habits. This way, Yolt helps you to make realistic budgets.

On the downside, you can only access the app through a smartphone as there’s no web interface.

c. Money Dashboard

The 2010 app helps you keep an eye on your money.

Apart from your mobile phone, you can also access Money Dashboard through a web platform.

On this app, you can link all your accounts and investments. Therefore, it becomes a one-stop shop for your cash and assets.

Besides, you can also custom make your budgets.

On the upside, the app is a smart budgeting tool and simple to use.

But, its user interface can be tedious. However, if you’re in it to save, appearances might not matter much.

Besides, it allows you to set budgets and shows you your balances as you spend.

The best budgeting apps with a new current account:

a. Monzo

The Monzo app is slightly on the higher end of things. This online bank provides you with quality categorized budgeting. You also get alerts.

You can set aside the money you intend to spend and put it in what they call a Pot.

The beauty of Monzo is that it can give you a paycheck advance when you’re broke. Monzo sends your money to your account until you get your paycheck.

If you’re on the Monzo Plus plan, you can get your expenditure list in Google Sheet form.

The Google Sheet form is optional, and you can turn on the feature if you’re interested.

b.  Starling Bank

Starling is another favorite app with savers and those looking for a proper way to budget.

The app puts all your spending data in a pie chart, helping you see if you’re on track or not.

Plus, it also presents the things you need to pay so that you never miss a deadline.

What sets it apart from the rest is that you can put aside some cash and only spend this using a specific card. 

For instance, you can set aside $40 per month for groceries and link this to a card. With this plan, you only spend what’s available and avoid going past your budget.

How Do I Make a Budget with No Income?

If planning your finances with an irregular income is tricky, then budgeting without an income can be even more complicated.

If you’ve lost your job or your seasonal contract has suddenly ended, you can still budget.

Wondering how to budget with no income? You need to make a list of expenses. Only include what’s essential, for example, food. 

Next, look for areas where you can cut costs. For instance, you can reduce your utility costs. Also, if possible, ask your lender to allow you to defer your debts.

To keep running until the next time you get cash, check all your resources for money. An excellent place to start will be your previous job if you’ve been laid off. Make sure you collect your severance pay and any other dues.

When budgeting, work with high expenditure and a low income. 

For entertainment, take advantage of free activities.

How to Budget with A High Income

If you are a high-income earner, it’s easy to get carried away and overspend. 

However, you can use some of these tips to avoid wastage:

Adopt a weekly budget: Waiting for the month to end to make big decisions might be unwise. Why? At the end of the month, there’s too much to do in terms of bill payments. But, if you work weekly, you can deal with fewer expenses.

Try and live on a fixed budget: In this case, the lower the expenses, the better. If you keep your spending low, you can save more. Besides, it helps you resist the urge to buy unnecessary items.

Separate budgets: If you have multiple income streams, have different budgets for each. With this plan, you can avoid mixing up your numbers.

It’s Doable. Try It Today

Having a budget as an irregular income earner has many benefits. You can avoid nasty surprises when the income is lower. Plus, you can take charge of your finances with a budget.

The basics of how to create a budget when your income fluctuates all boil down to determining your baseline. What are your most essential needs? 

To budget effectively, learn to pay yourself a salary. This way, you work predictably.

Also, set up an emergency fund. Such rainy day money will help you navigate the days your income is low.

The good news is that there are apps online to help you organize and balance the math.

Go ahead. Create your budget today and enjoy a stress-free life despite your irregular earnings.