Budgeting on an irregular income can be a challenge even for the most organized person. It's certainly less daunting for someone working a steady job. That's because a steady job means a steady paycheque, so you can predict exactly how much money you'll have coming in each and every month. Budgeting for monthly expenses is much easier when you know exactly how much money you have to cover those expenses, but what about people earning an irregular income?
Self-employed contractors, freelancers, and entrepreneurs can find it difficult to manage (and stick to) a budget. The same can be said for salespeople, restaurant workers and others whose tips or commissions can vary wildly depending on the day or season. If you fall into this category, creating a spending plan or budget may seem like an impossible task. However, with a little effort, it’s not so hard—and it can even leave you with some substantial savings! Here’s how it works.
First, you’ll need to review your income over the last year. (Two years is even better if you want a more accurate understanding of your income.) While you may not have all of your pay stubs handy—or any pay stubs for that matter, depending on your job—you can take a look back at your bank deposits over that period of time.
While some financial gurus might suggest finding an average between the lowest and highest monthly earnings, and then use that number as your monthly income, it’s better to work with the lowest amount you’ve earned in any given month and then base your monthly budget or spending plan on that figure. Why? Because it’s always easier to add more money to your budget if and when you have it, rather than having to adjust your budget or spending plan because you actually have less money coming in than you had anticipated.
After figuring out the least amount of money you’re likely to earn in any given month, it’s time to create your budget (aka spending plan) using that amount as your base monthly income. You can use our Budget Tracker to get started; it will take you through all the expenses you'll need to include in your budget, such as housing, utilities, food, etc., along with any discretionary items you'd like to include. (Those things you don’t really need, but still enjoy.)
Now that you've got a budget or spending plan in place to work with, it's time to give it a trial run. You should test it out for about a month. Then, at the end of the month, review your expenses and see how you did. Did you come in under budget and have some extra funds left over? Or did your expenses exceed your income?
If you still have some money to spare based on the least amount you’re likely to earn, you’re in great shape! If you came out just even with your budget, that’s okay too. Remember, you’re working with the least amount of money you expect to earn in any given month, so if you stick with this budget, there will be months where you'll have some extra money left over.
However, if you find that you’re over budget, meaning your expenses exceeded your income, it’s time to rethink your expenses and see where you might be able to cut back. (Our Budget Calculator can be a real eye-opener!) There are some simple things you can do, like call your service providers and negotiate better rates. But you can also take a look at supplementing your income by incorporating a side hustle or side job, like dog-walking, house-sitting, becoming an Uber driver, selling stuff online, or doing some freelance work, like blog writing.
If you find yourself with some extra money at the end of the month, it’s time to decide what to do with those extra funds. While it might be tempting to spend it, knowing that you experience highs and lows when it comes to your income, your best option is to create a “hill and valley” fund.
A hill and valley fund is an account you add any extra money to when times are good, and then when things seem a little tight one month, you pull money from this account in order to help make ends meet. But do not think of this as your emergency fund! That should be budgeted for separately and the ONLY time you withdraw money from your emergency fund is when you encounter an actual emergency, like your car breaking down, you needing to replace your furnace, or an emergency dental procedure. The hill and valley fund on the other hand is yours to add to or pull money from as needed based on your fluctuating income.
If you’ve followed these steps and are still finding it impossible to meet your budget based on your monthly income—which in this case should be the least amount of money you expect to earn in any given month—there are a few different things you can do, such as attend a free money management seminar to learn different techniques that can help. (And, if you’re finding it hard to stick to your budget due to outstanding debt, debt consolidation may offer some relief.)
But no matter what your personal financial situation is, our certified credit counsellors are here to help. One of our amazing, caring counsellors can review your full financial picture and then discuss any options available to you to find a little breathing room in your budget. The counselling session is 100% free, confidential and non-judgmental. Simply call 1.800.267.2272 and we'll book you a free debt counselling session with one of our certified experts.