Creating a Viable Budget With Irregular Income

Conference calls in your pajamas, extended lunch hours, no worries about arriving late — these are just few of the enviable perks of the freelance life. But any freelancer will tell you that one of the biggest stressors of freelancing revolves around money. In today’s job stagnant economy, more individuals are working part-time or depending on freelance income to keep their finances afloat. Among the challenges of not having a regular income, is not having your taxes automatically deducted from your income, collecting payment on time to pay bills and of course, not making enough money to cover expenses.

[Related: 4 Tips for Moving From Employee to Entrepreneur]

Being fiscally prudent and to stay on top of your money is just as important for any freelancer as delivering on deadline. How can you make a budget if your income is irregular? Here are two methods that can be used to have a sound budget with irregular income.

Average Income: Add up how your earnings over the last two years and divide it by 24. This will provide you with an average monthly income. Create a budget based on this average monthly income. During the months when you earn more than your monthly average, set the extra money aside to carry you through the months in which you earn less. If you use software such as Quicken or, it should be easy to see. If not, add your monthly necessary recurring expenses – housing, transportation, utilities, groceries, debts, savings, retirement, taxes etc. Using your log of expenses or old bank and credit card statements, create an average figure for your monthly discretionary spending on items such as travel, supplies, transportation, education, etc.

Lowest Income: Create a budget based on the lowest income that you’ve earned. Look through all of your income statements for the past 24 months and create a budget based on the lowest monthly amount that you earned. Use this amount as your baseline budget and make sure that your expenses fall within this amount.

Your baseline budget should also include the money set aside for savings. Remember, one of the top rules of budgeting is to always “pay yourself first.” Make payments into your savings the same as you pay your bills. Savings should be no different than your mortgage bill or your car payment — you have to “pay your savings bill” every month.

If your budget is based on your lowest month’s earnings, then you will most likely have excess money each month. Set this money aside to tide you over in case you earn even less than your lowest monthly income some month.

People with variable incomes may find that their earnings drop sharply at unexpected times. By putting aside your extra savings and building a hefty emergency fund, you’ll be prepared for those moments when your income drops.

If you don’t know how much you’ll be paying in taxes, just estimate 30% of your income to begin, but be sure to get an exact figure from a tax professional.