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How do you budget when you have irregular income?

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A friend wrote me this email wondering how I budget on an irregular income. I have some suggestions, but before I write them up on here, I wanted to throw the question out and see what people think. How do you budget for irregular income (e.g., if you’re a student, consultant, etc)?

How do you budget when you have a highly variable and semi- unpredictable income over time, due to significant amounts of contracting, short-term (summer) gigs, etc.?

My stipend is $x/month, but I not-infrequently make 1.5x, 2x, or 3x, often just for a week or a month, or for the summer, and even my stipend varies (by 50%) from year to year due to different combinations of support/fellowships. In short, I make “enough” money, but how/where/when is totally up in the air.

I get by without trying primarily because I’m frugal and focussed in my spending, and all my income goes directly into savings from which I mostly deduct fixed amounts monthly…

But it’s at best semi-planned and I still don’t always feel in control, particularly under extended periods of heavy deadlines and such when my ability to manage my life goes out the window, I totally lose touch with Quicken, and my spending even seems to increase due to much larger amounts of restaurant food (OMG NO TIME FOR GROCERIES!!1!).

The core problem is this: though my net savings cashflow is almost universally positive, I still pay major/one-time expenses directly out of savings (since that’s where all money goes aside from monthly rent, DRIP deposits, etc. that gets auto-deducted). In short, I’m half-way organized and the other half is just riding on the fact that I’m *generally* frugal and “relatively* well-off.

This is hard with such variable income since my innate pattern- matching skills no longer apply (“my savings is only up $2000 this month, something must be off or I must have spent too much” makes no sense when my savings should go up anywhere from $1000 to $7000, mid- month or any other time, depending which way the wind blew last Tuesday).

What do you suggest for budgeting on an irregular income?

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  1. My wife and I have a minimal amount that we know we are going to make. She makes at least $400 a week and I make at least $600 every other week. We budget on the minimal amount and either apply the extra to our savings or to paying off a particular loan. If we know one week will be lower than those amounts we will either pull the difference from our savings.

  2. I can relate with you. I’m also a graduate student with a varied income.

    Bottom line: If frugal, which you say you are, I recommend budgeting based off of the lower-end of your payscale. For example, if you make anywhere from 2000-6000 a month, budget based off of 2000. (or maybe higher than that if you need to). Doing this would allow you to add major cash to your savings, potentially.

    You should feel proud. Not many students can say they have a positive cash flow! Good luck to you!

    Kind Regards,
    Jonathan Cisco

  3. I have two suggestions:

    -Use your high-interest account to buffer your income over time; use your money-losing-after-inflation traditional bank account to spend out of. E.g. have everything deposit into Emigrant/ING/HSBC/whatever, and have a scheduled transfer from the high interest account to your traditional bank account. That way you can see each month whether you have more or less *in that account*, which will give you an idea of your actual consumption.

    -Learn to love Quicken’s cash flow features. If you carefully exclude accounts/categories, you can make them actually reflect what’s going on. In particular, you want to be watching the outflows, obviously, to make sure they’re constant (instead of benchmarking against how much your savings went up this month).


  4. No matter how much money you make, your budget should be how much you need to maintain yourself, the people who depend on you, and your livelihood.

    1. Assess what you spend money on.
    2. Budget according to what you need to live and work (food, insurance, rent, debt payments, paying yourself first, etc).
    3. Maintain a buffer long enough to pay for #2 for 3-6 months.
    4. Prioritize your other expenses (toys, vacation, education, etc).
    5. When you have money beyond this buffer, plan how you will spend it according to your priorities.
    6. Spend your money according to plan!

    Again – it doesn’t matter how much money you MAKE, it matters how much you NEED.

  5. Heh. Haven’t got as far as planning yet, but since me too I always seem to acquire “enough”, I intend to take an average of the acquired and spent money over the previous 3 or so months and imagine that would be what I would get.
    Really interrested in this one, since it’s really my situation as well (maby not that impressive differences from month to month, but still not stedy).

  6. My wife and I started using Budget ( which handles irregular incomes. It’s a really cool program which uses the tried-and-true “envelope method” of handling your expenses. We’ve only been using it for a month but I definitely would recommend it. It takes some getting used to, but it’s definitely worth it!

  7. I’m the full-time student, part-time worker type. Here’s what I do.

    For each month, I plan my mandatory expenses. Food, rent, car, would fall in that category, but I discovered that I had very few mandatory expenses, as I live with my parents. My mandatory expenses includes about 40$ gas a month, and 20$ for my cell phone.

    That’s for the mandatory expenses. Whenever I notice the need to buy something (new shoes, because the old one begins to wear out, for exemple), I put it on a to-buy list. This list is ordered by priority. I put the name of the thing I need to buy, the priority, and the ammount of money I’m ready to put on it.

    Let’s say I recieve 100$ for a pay. Yeah, for the purpose of the exemple I’m some poor guy. So as I said I have 60$ mandatory exepenses. It leaves me with 40$. Assume that my to-buy list begins with Shirt (30$, High Priority), Watch battery (5$, Average Priority) and Shoes (40$, Low Priority). I keep 60$ aside, buy the shirt and the battery, which leave me with 5$. At that time I’m sad because my pay is now gone, but I have budgeted my way through my expenses.

    I do it on a two-weeks basis, so I cut my mandatory expenses by two. I buy a first 20$ of gas and put 10$ aside for my cell phone, then next pay I buy another 20$ of gas, and spend my 10$ + 10$ on my cellphone.

    Oh, and Quicken is my friend.

  8. As a novice freelancer, I’m in the same boat, so thanks for this question! My modus operandi has been so far to spend as little as humanly possible each month and hope I break even. So far I have, but it’s not been fun. I’m looking forward to a more reliable income…. hope it comes soon. From the comments I think your audience appreciates this type of question, Ramit– can you talk more about saving on a really low or variable income? I bet lots of us are recent graduates who are still trying to find their way in the world and experimenting with different financial paths, and not just the 401k crowd.

  9. Seems like Mary Hunt’s “Freedom” Account would be an especially useful concept if you’re on an irregular income. The basic idea is to identify major irregular expenses and to subdivide a separate real-world account to save for those expenses, so they don’t sneak up on you.

  10. As is pretty obvious from the comments already, know your minimum and have an emergency buffer. Whether you earn an irregular income or not, this should go without much saying.

    Otherwise, I’d say feel free in letting go of the control. You don’t have to have your life planned out years or even months if even weeks ahead. That’s the beauty of life, so enjoy the lack of control (through established forecasting/budgeting measures).

    The biggest question might be, “I want to buy a house, but how can I plan for saving for that if I just don’t know?” First of, you have a general idea. You’ve got some history which lets you make guesses. If you don’t have any history, then it’s probably too early to think about buying a house.

    My biggest question is why do you have to have this figured out? What is the real problem because I don’t really see what the issue is. I think you’re trying to solve a problem that doesn’t really exist, but only exists as a mental fear (“I’m out of control and don’t know what to do”).