How to Actually Budget When You Don't Have a Regular Paycheck

According to an article published by the Bureau of Labor Statistics, there are over 53 million people in the United States who consider themselves freelancers.

As any freelancer will tell you, one of the most difficult parts about freelancing is managing irregular income. It is not easy to make a budget and stick to it when you don't know how much you're making each month.

Freelancers aren't the only ones who have irregular income, though. Millions of Americans also work on commission based structures, meaning their income can vary widely from month to month.

Fortunately, there are ways to get a handle on managing irregular income. In this article, we're going to lay out exactly how individuals with variable income can budget their money effectively and easily.

1. Keep your expenses fixed.

Regularly employed people have fixed income and often times don't have fixed expenses, meaning they don't really keep an eye on their spending. According to data compiled by The Credit Examiner, the average American spends $1.33 for every $1 earned.

The trap many freelancers fall into is having both variable income and variable expenses. This can lead to major frustrations because you feel like you have no control.

The key to balancing a budget when you have irregular income is to keep your expenses in check. You want to strive toward keeping your expenses as fixed as you possibly can. By keeping your expenses fixed, you'll know the bare minimum of what you need to bring in each month and can work toward it.

In this case, it's important to consider Maslow's Hierarchy of Needs when figuring out your baseline expenses. This hierarchy was a theory proposed by the psychologist Abraham Maslow in 1943 where he argues that humans have specific psychological needs that can be organized in a hierarchal order. For example, you need to make sure you've got the basic psychological needs like food, water, and a roof over your head covered no matter what. From there, you can add things in that are higher up on the pyramid like clothing and going out with friends.

2. Don’t get comfortable.

Another trap many people with irregular income fall into is getting comfortable when they get a nice check or a big project. This sometimes leads freelancers and contractors to coast because they don't feel financial pressure.

This is dangerous territory to get into. The reality is a project can end and money gets spent. It's the very nature of irregular income. If you don't keep this in mind, you run the risk of having too little money in the bank to cover expenses when a project ends.

The notorious feast or famine cycle happens when contractors and freelancers get too comfortable with a project. The good news is avoiding this vicious cycle is completely in your control. You just have to make sure you never stop looking for work.

For people who work off of a commission based structure, such as a sales job, this looks like never dropping the ball on prospecting. Don't get comfortable with a big commission check and slack off.

3. Create multiple sources of income.

Another way you can budget more easily when you have irregular income is to have multiple sources of income. Don't just rely on one project to get you through, instead take on several clients and create your budget based off an average amount you're bringing in each month.

Having multiple clients also helps you make sure your bills are covered when a client project ends or a deal doesn't go through. Knowing you've still got money coming in even when a project doesn't pan out can give you peace of mind as you learn to manage irregular income.

I once attended a conference where one of my colleagues expressed this concept in a brilliant way. He said, "I have so many clients that if I lose one this month it's still okay because I haven't lost all of my income." By truly understanding this, and implementing it, you ensure that your budget remains unscathed.

4. Automate the bare minimum.

When you have irregular income, it's difficult to automate all your financial responsibilities like retirement and savings. However, you can at least automate the bare minimum amount you want to save each month.

For example, if you know you want to put at least $100 into an emergency fund each month, make sure you automate it. If you can save more because you had a good month, great! If not, you at least have your minimum covered.

5. Base your budget off of percentages.

When you have irregular income, it's sometimes easier to base your budget off of percentages. This is especially true when it comes to savings.

The good news is, most people with irregular income already do this to an extent thanks to taxes. Your tax rate is a percentage based on the amount of money you make, so people with irregular income should already be putting this amount into savings with each deposit they receive.

Once that's done, you can take it a step further by also basing your emergency savings and retirement savings off of percentages. You can even do it for shorter-term financial goals like taking a trip. For example, maybe you decide to save 5% of each payment you receive for your next vacation.

This method ensures that you're saving as much as you can rather than just keeping it at a bare minimum. For more on this method, check out "The Money Book for Freelancers, Part-Timers and the Self-Employed."

6. Prioritize emergency savings.

Everyone should be putting money into savings each month, but people with irregular income need to pay special attention. If you have irregular income, your emergency savings can save you the next time you experience a lean month. It also gives you more peace of mind to know you have money in the bank to pay rent the next time someone is late in paying you.

Final thoughts:

Budgeting when you have irregular income can be frustrating, however, people with variable income need to realize they have more control than they think they do. By using these tips, people with irregular income will be able to pay their bills, save money and ride out any rough patches they may encounter.