Introduction

If you work in sales on commission, or maybe you’re a freelancer and you do a bunch of contract work for people, or maybe you work in the gig economy, you drive for Uber or Door Dash, either way you don’t have a regular income, so a budget isn’t going to work for you. Wrong. Even if your income changes every single month, we can still create an effective budget that accounts for everything and helps you save more money at the same time.

If you’re a freelancer or a business owner or you simply just have an irregular income, you can create a budget without complicating it, and it’ll help you take control of your money, allocate it toward the things that are important, and get through some of those months where the income isn’t so great.

Perform a Financial Audit

The first thing you need to do is perform a financial audit. What I mean by this is you actually need to dig through your bank and credit card statements and look at how much income you have made over the last couple of months on average, as well as where your money has disappeared to for those expenses. The best way to do this is to look at the last 90 days or the last 3 months, and you can average out your income, especially if you have a variable income. You can have a baseline of, I always make about this much money. And then on the expenses side, you can look at it, I spent about this much, here’s how much my bills are, here’s how much my groceries are, all of those things.

If that sounds a little bit overwhelming, Lunch Money makes this easy. You can sign up for a free 30-day trial, connect all your financial accounts, and it’ll bring in all of that data so you can actually look, here’s all the money that I made, here’s every time I got paid, all my deposited commissions and tips, things like that. And it’ll show you month over month how much you make per month on average. You can look at your lowest months, your highest months, things like that. And on the expenses side, it’ll automatically categorize all of those transactions and show you where your money has been going. So you have a baseline budget to start with, but you’re going to need to do this financial audit so we can start to work with realistic numbers when you start to put together this budget.

Note: this article may contain affiliate links.

Step One: Start With the Worst Case Scenario

Step one for creating a budget with an irregular income is to truly just start with the worst case scenario. You want to create a budget based on the lowest possible income month. So let’s say, for example, you’re in sales and you’re on 50% commission, but your baseline salary is about four grand a month take-home, you’re going to want a budget based on that four grand a month. That might feel like very little, and you might think there’s no way, I’m not going to make any sales, but it’s a good idea to start there, and then we can add in things later.

So your baseline budget amount would be that four grand. If you’re a freelancer or in the gig economy, just look in Lunch Money at all of those details, my worst month was about this, let’s start here. And if you have a higher income month, we’ll show you what to do with that.

Creating a Baseline Budget for Expenses

Once you know your baseline, lowest possible month of income, we’re going to go to your expenses and create a baseline budget. If you use Lunch Money to bring in all of your spending data, you’ll know this is about what I spend. But what you want to focus on truly is just your fixed expenses and your variable expenses. Fixed expenses are things like your rent, your car payment, your credit card minimum payments, subscriptions, things that are going to go out every month on a regular basis. And truly we’re just going to focus on the needs here. We’re not going to add a bunch of extras in, we’re just going to budget, because we’re using your baseline income, we’re going to do baseline budgeting here.

Just create a budget based on here’s what I need. I need shelter, I need a roof over my head, I got to pay the utilities, I need transportation to get to work, and you need to make sure that you have money for food. So those are the big core baseline things, so focus on those. And then on the variable expenses side, groceries, restaurants, online shopping, clothing, whatever those daily type expenses are, you’re going to want to create a baseline for that as well.

The goal is to really just focus on what you need right now. We’re going to create almost like a bare bones budget that you’re going to start with, and then what we’ll do is add in some extras later.

Building a Buffer Account

The reason we’re starting with this bare bones budget is the goal is to save up a buffer, because the way that variable income works is you might have some great months and some not so great months, and what you want is to have a savings buffer to help you take care of those lower months, to make sure you can still hit your savings goals and have money set aside and pay the bills. So the goal would be, maybe open a savings account, call it buffer or call it an emergency fund, whatever you want to call that account. In your baseline budget you have your income, you have your basic needs and expenses, anything left over we’re going to roll into that buffer account.

The goal would be to grow that account so that, let’s say you have two or 3 months that just go poorly, it’s a tough time finding work, whatever that is, you can use some of those funds to help pay the bills during those months. And then when you have a really high month, let’s say you double your income for a couple of months, great, take a big chunk of that and put it into this buffer account. The goal is to smooth the ups and downs, the roller coaster of variable income life, so that you can actually have a smoother ride along the way.

How Much to Save in Your Buffer Account

A common recommendation is to have at least 3 months of expenses set aside, so maybe that’s a goal you can work toward. Based on baseline needs and expenses of around $3,500 to $4,000 a month, three times that would put you somewhere close to $10,500 to $12,000 set aside. Set that amount as your goal, the idea is to build a fund that helps take care of those ups and downs in your income.

Adding Extras When You Have a Better Income Month

For the actual budget, you’re going to have your baseline income, your needs expenses. If you have a great month, this is where you could potentially add in some extras, so maybe you can go to restaurants, maybe you can go on a trip or buy some gifts or do some fun things for yourself because you have a better income month. Of course you’re going to make sure you’re still setting aside money for when the months when the income is lower, but this is where you’re going to flex with it. You have a baseline budget, and then what you’d create is a section just called extras, what are the things that you would add to your budget if you had more income this month.

The goal would be to keep a close eye on your income and your expenses and how things are going. Lunch Money makes this easy, you can sync your financial accounts to the app, and it’ll show you as things go in and out, as money comes in, as your expenses go out, you can just keep an eye on it to make sure that you’re not overextending yourself.

Track Your Progress

Once you have the baseline budget put together, you’re going to track your progress. You have to keep an eye on how things are going, because just creating a plan doesn’t help you execute it, you actually need to see what’s going on. So as your income comes in, make sure it’s allocated toward your fixed expenses, toward your variable expenses, toward some savings into that buffer account. Keep an eye on it, make sure the money ends up where it needs to go. If something pops up, make sure that you allocate for that, you account for it, put it into that budget to make sure you can take care of those expenses, so you don’t have to dip into the credit cards and go further into debt because you weren’t keeping an eye on where your money was going.

Example Budget Walkthrough

For example, we talked about earlier, maybe your baseline income is about $4,000 a month, your rent is $1,300 a month, and you’ve got some other fixed expenses that add up to about $2,000, and then with groceries and other daily spending maybe you spend another $1,000, and then you’re going to set aside $1,000 a month toward your buffer account. Or if you have a higher income month, you can now go into those extras, and so you can go out to eat, and you can go on a trip with friends, or take a weekend, or go do wine tasting, or something like that. The way you physically use this budget is you’re mostly just focused on fixed and variable expenses, take care of the needs first.

And then if you make more than that $4,000, you can start putting money toward extras, but you’re always going to allocate that $1,000 a month to build that buffer account. And then once that buffer account is in place, that $1,000 a month should also go toward things like savings and future retirement, stuff like that. So the goal would be, have this core piece, make sure you’re always saving this amount, and then as you make more money, you can add in some of these really fun extras.

How to Set This Up in the Lunch Money App

Lunch Money makes this really easy to create a budget on an irregular income. If you have an irregular income, you can split it out between your needs and then any extras, and create that baseline budget here. If you check out the app, in the budget view, you can see the budget put together, but the way it’s split out is with necessities and extras.

You’ll have a budgeted amount for the necessities, and then you’ll add in any extras for when you have higher income months, so you can actually afford those things. The way to set that up is, if you go into the setup, you’ll see the categories section, and what’s cool is you can adjust and edit all of these categories in any way, shape, or form. To create the necessities and extras groups, you add a category group and name it necessities. The idea is to bucket in the things you have to pay for, the things that are not negotiable, like rent, utilities, and transportation.

Setting Up Necessities Categories

Under necessities, if you go to modify categories, you’ll see a whole list of categories to choose from, and you can also add new ones. From there, you’d mark the things that are necessary, car insurance, car maintenance, your car payment, transportation, your cell phone, credit card minimum payments, gas, groceries, household items, internet, pets, utilities, rent, the things you have to make sure are covered. Once you’ve added all of those into the group, you’ll have a section called necessities that lists those things, and you can create a quick budget from there.

Setting Up Extras Categories

On the extras side, you’d add things like restaurants, entertainment, spending cash, miscellaneous spending, things like Christmas, birthdays, vacation, those things only get added if you hit higher than your baseline income. Let’s look at the actual budget and see how this could work. We talked about maybe your income is $4,000 a month as your baseline, and then maybe you’ve got a side hustle, or you could even call that commission. If you go back to setup and hit categories, you could call this commission, then go back to finances.

Covering Necessities and Adding a Few Extras

You can quickly see that necessities come out to about $3,100, so your $4,000 income will cover those necessities, and you have an extra $900 to work with. From there you can add a few more things in, so maybe about 100 bucks a month for eating out when you’re on the road, or setting aside a couple hundred dollars for Christmas each month, maybe 100 or 200, and then streaming services, and 150 bucks in spending cash. That brings you to about $3,500, so you’d be able to live on this basic budget, that’s your baseline budget.

Adding to the Buffer Account With a Higher Income Month

If you have a high income month, let’s say you make six grand, with $2,000 in commission, so you take home $6,000 for the month, you can start adding to more of this stuff. You can even add different categories, so if you go back to setup and categories, you can add a buffer account category. And if you go back to the budget, you can start throwing any extra money at this, so if you’re only spending about $3,500 and you make an extra $2,000, you can put $2,500 toward this buffer account. Maybe that just rolls into next month, or it goes into a higher yield savings account outside your regular checking account.

Adding Savings Goals and Tracking Everything

Once you know that anything you make above your baseline can go toward filling up that buffer, you can start adding things like a Roth IRA, or saving for a house down payment, setting up goal accounts and funding those. Within Lunch Money, in addition to creating this budget, you’ll be able to track everything, so as those transactions go through, you’ll see the total, the activity, and what you have left for the month. So if a $200 grocery transaction comes through, you’ll see you have 100 bucks left, quickly, easily, automatically, right inside the app.

Conclusion

Now you know how to budget even on a variable income, taking care of your basic needs when money is tight, but being able to add in extras and save and invest for the future when you have higher income months, and making sure you have that buffer account to smooth the ride along the way. If you want to manage all this within the Lunch Money app, there’s a free 30-day trial, you can connect your accounts to see how much money you normally make on average, where your money goes, and automatically create a budget based on those numbers, then track your progress along the way.

Setting up extras, goals, and your savings goals for when you have better income months, and ultimately all of it leads to saving more money.