Irregular income refers to salaries that vary from paycheck to paycheck or month to month. Managing irregular income is possible if people review their finances, establish functional budgets, and assess their performance regularly.
Budgeting with an irregular income, also called a variable income, can present unique challenges. This article explores practical strategies to help individuals budget effectively and manage their finances even when income isn’t predictable.
Here are a few steps to take to keep finances on track.
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The first step for people with an irregular income should be to assess whether there’s an income pattern. Keeping a record of all sources of income, how and when they were earned, is essential to gain a clear financial picture.
Tracking savings and spending can help identify trends, such as what months, days, or periods of each day are the most profitable, and inform personal financial decisions. By consistently monitoring these fluctuations, individuals may be able to better anticipate lean periods and plan accordingly.
Once people understand their income patterns, they can use that information to establish an irregular income budgeting strategies for families or individuals that helps them keep their finances on track.
However, since variable income isn’t predictable, figuring out how much money each person has to work with can be tough. Here are a few methods to consider using when calculating typical income for a new budget:
Budgeting with an irregular income can be more difficult than it is for individuals with consistent income. However, because income varies from month to month, setting a clear budget can help people better maintain their financial well-being.
Start by prioritizing fixed monthly expenses from different budget categories. These are expenses that people must pay for in full each month to ensure they have the bare minimum to live comfortably. This includes common household expenses like:
Once individuals account for those expenses out of their average monthly income or lowest-month income, they can allocate the amount left over to other expenses. This may include costs for:
Keep in mind that budgets are not set in stone. People with variable incomes may want to use their budget as a general guide rather than a hard and fast rule.
An emergency savings fund is an account set aside to be used specifically in case of emergency, helping to manage unexpected expenses or income shortfalls.
Having an emergency savings account can be really helpful, especially for those with irregular incomes.
Potential benefits of an emergency fund include:
To create an emergency fund with unpredictable income, people should set up regular contributions from their preferred checking account.
Here are some strategies to consider:
When people earn irregular incomes, their budgets can change more often. Try to review the budget at least once a pay period to make sure it accounts for all necessary expenses. Some people may find it useful to create a bi-weekly budget so they can adjust their spending more quickly.
If income only slightly varies each month, individuals may want to reevaluate their budget every month or two.
Any leftover money can go toward savings goals or similar expenses based on individual preferences.
If income is lower than anticipated that month, the person may need to cut back on additional spending or reduce the amount they contribute to savings to cover necessities.
Irregular income jobs come in various forms, each with its own unique characteristics. From making money at home to seasonal roles, here are a few examples of irregular income, the types of industries where it’s most common, and who tends to earn variable income:
Budgeting with an irregular income can be challenging. But with the right strategies and tools, long-term financial stability is possible. By creating a comprehensive money management plan and sticking to a budget, people can reach their financial goals more easily and reduce the risk of spending more than they should.
However, the key to thriving with an irregular income lies in saving up to cover those unexpected lower-income months.
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Here are a few frequently asked questions about irregular income.
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