Every Thursday in 2025, we’ll answer your questions about money and budgeting. If you have a question you’d like answered in a future post, please submit it here.
Today’s question is about how to create a budget when your income fluctuates.
“I work as a para-worker at a school, so my income is not constant. I don’t get paid for holidays, school holidays, or summer vacation. How can I budget if my income is unstable?” – Anita
This is a great question and one I hear a lot. We’ve found that many people think they can only budget if they have a steady paycheck of the same amount every week or every other week.
our income is not always stable
Let me encourage you, we have never had a steady income. When we first got married, I worked as a waitress and Jesse worked part-time. I had no idea how long I would be working, how many customers I would have, and what kind of tips they would leave. We were trying to save as much money as we could for the next few years, when Jesse would be attending law school. So I lived with what I could and saved the rest. Budget was the key to making this happen.
After Jesse went to law school, we held several different jobs over the years. All were part-time and almost all had variable hours and opportunities. I also started a few online businesses during this time and started learning how to make money blogging. Some months my income increased, and other months it decreased significantly. It took months and months of scraping, but I still stuck to a strict budget.
A few years later, and now that MoneySavingMom.com is my full-time income, my income still varies greatly. We work with a variety of brands and companies, and some months we have a lot of opportunities, and other months we have a lot less. We generally know which months will be low throughout the year, but there are usually some unexpected events or things that we thought would work out that don’t. Once again, a budget is what allows you to survive the ups and downs and fluctuations of running a business in the age of an ever-changing online world.
How do you stick to a budget if your income varies?
How have we managed to stick to a budget during our 22 years of marriage, various jobs and income changes, upheaval and lack of stable income? This is what works for us, and we have variable income. Highly recommended in case.
1. Create a budget based on your lowest monthly income
A basic principle for managing unstable income is to base your budget on the minimum expected monthly income. First, check your past salaries and identify the month in which you earned the least. That’s the number you’ll use as your baseline. If your minimum income is $1,500 a month, build your budget around that amount.
This ensures that basic expenses such as rent or mortgage, utilities, groceries, and transportation are always covered. Treat any income above this baseline as a bonus and use it strategically (more on this later!).
If you have an income that sometimes leaves you with no income at all during the month (like if you have a commission-only job or, like Anita, have no income at all during the summer or vacation), I say this. I encourage you to take a comprehensive look at the past few years. How much have you earned annually over the past few years? Are you fairly guaranteed to make the same amount next year?
Reduce this number by 20-30% and divide by 12 to get your monthly budget. (The reason I’m asking you to take 20-30% off is because I want you to plan for less than you think you’ll actually make. It gives you instant cushion and reduces stress.) Also, I think it’s an important habit not to plan to spend all the money you earn on basic expenses.
2. Check your budget, not your checking account
Shift your mindset from looking at what’s in your accounts as “spendable money” and instead look at your budget to see how much money you actually have to spend in each account. This change here could change your life! (Need help setting a budget? free money tracker worksheet!)
If this is difficult, don’t leave your paycheck in your main checking account when it’s deposited into your account. Instead, put it in a separate holding account or “income account.” From there, you only transfer the amount you need to cover your budgeted expenses for the month. This will give you a sense of stability even if your income fluctuates.
This system allows you to think about your income in terms of your monthly budget rather than your personal salary. It will also help you avoid the temptation to spend your extra income impulsively.
3. Build an emergency fund by making short-term sacrifices
One of the best things you can do for yourself if your income is unstable is to create a buffer. Start by setting a goal of saving a month’s worth of expenses. Once you reach your goal, aim for 3 months, then 6 months.
This emergency fund is your safety net if you have a month of low income or an unexpected expense. To build this fund, take the extra income from your high-income months and put it into a high-yield savings account. Treat it like a bill. Pay your emergency fund bills first.
And yes, that may mean being on a very tight budget for six months or even several years to make room to dip into savings. Think of this as a short-term sacrifice with a long-term benefit.
To make room in your budget to save for an emergency fund, look at your current budget and ask, “Is there anything you can live without?” Do you have one?” Ask a friend or mentor to look at your budget and also help you identify areas where you could make cuts. Fresh outside eyes can give you a new perspective.
If you really can’t cut back on anything, you might want to consider what you can do to earn some extra income on the side over the next six months to a year. Could you extend your working hours or take on a small part-time job in the afternoons or evenings? Why not ask your friends and colleagues if they have any projects or small jobs you can do to make extra money? Ideas: pet sitting, babysitting, tutoring, dog walking, contract work on Uber, Doordash, Upwork or Fiverr, selling on Facebook Marketplace, working as a virtual assistant, etc.
(Note: 1 hour budgetcomes with a bonus. 50 ways to increase your income. )
4. Create a sinking fund for predictable expenses
A sinking fund is a savings account that you use for predictable but irregular expenses, such as car repairs, holiday gifts, and back-to-school shopping. By setting aside a small amount each month to cover these expenses, you can avoid the stress of having to scramble to cover them when they arise.
For example, if you know you need $600 for holiday gifts, start saving $50 a month starting in January. Come December, you’ll already have money set aside, so you won’t have to pull into your regular budget or use your credit card.
I explain more about how to do this in my post on How to Budget for Variable Expenses.
5. Use “extras” wisely
During high-income months, you may be tempted to splurge or upgrade your lifestyle. Instead, use that extra income to strengthen your financial foundation. Here are some ways to use your extra money wisely:
- Build or replenish your emergency fund
- repayment of debt
- Contribute to long-term savings goals, such as retirement or a down payment on a home
- Strengthen budget categories that are depleted
At the end of the year, evaluate any additional income you have left and decide how to allocate it to your financial goals. Whether it’s saving, investing, or treating your family to something special, make sure it aligns with your priorities.
(Need help figuring out your financial priorities? Printable pack of free budget goal planning worksheets. This free printable pack is designed to help you dream about your financial goals, walk you through the steps to turn that dream into a realistic goal, and break it down into monthly bite-sized portions. It has been. )
6. Practice gratitude and contentment.
Finally, remember that managing your money is not just about numbers, it’s also about your mindset. Focus on what you have and can do, rather than what you don’t have or can’t do. Celebrate small wins, like saving $25 or sticking to your monthly budget.
When you approach your finances with gratitude and contentment, you’ll find that managing your unstable income becomes less stressful and more empowering.
You can do this!
Living on an unstable income may require some extra effort and planning, but it’s absolutely doable. Create a system that works for you by creating a budget based on your minimum income, spending based on your budget rather than your checking account balance, building a strong emergency fund, and using additional income strategically. Masu. Over time, these habits will bring you more financial security and the freedom to enjoy life, even during school holidays.
PS Do you need step-by-step help setting up a budget? Check out my new resources:1 hour budget. A simple and effective guide that walks you through the process of setting a realistic budget in just 60 minutes.
Want to reach your financial goals but don’t know where to start?
using these Free Budget Goal Planning Worksheetstart with the most important part of goal setting and then make room for tracking your steps.
Source: Money Saving Mom® – moneysavingmom.com
