7 Financial Experts Discuss Budgeting and Living on a Variable Income

Brent Pittman —  07/19/2013
budget as artist

How do you budget as an artist?

No longer do we work at traditional 9-5 jobs for 40 years and then retire. We live in a gig economy of contract workers, freelancers, and solopreneurs.

We weave in and out of traditional jobs starting our own business and having side hustles for extra income. This new reality changes the way we’re paid and thus how we budget our money isn’t “normal”.

Most personal finance books are great–if you have a traditional job with a predictable income of 26 paychecks each year.

I’ve noticed there is a large gap for those trying to do money smart in the gig economy–especially when I was coaching artists and freelancers in Los Angeles.

That is why I’ve asked several financial experts: personal finance writers, financial coaches, and previous financial advisors to weigh in on the subject of budgeting and living on a variable income.

I hope this a helpful resource to begin budgeting on a variable income.

1. What Advice Do You Have for Someone Living on a Variable Income?

Joe Saul-Sehy: Budgets love similar expenses….the same payment every month makes budgeting a breeze. My clients with big income spikes faced a dilemma: make lots of money and eat filet mignon or make little and eat ramen noodles. This boom/bust cycle of income created huge spurts of unintentional spending that would destroy a budget. So, what did we do?

First, we got ahead of the game by putting money into a reserve. Second, we set up the income stream so it paid into the reserve account. Third, we created a “paycheck” out of the account that we knew was sustainable so that we could keep a consistent budget. In this way, even though money came in and out in spurts, the family was able to predict how much they’d have available for expenses.

Even better news? Whenever there was WAY too much money in the reserve account they could “bonus” themselves for large purchases, vacations, or extra savings. Listen to his Stacking Benjamins podcast

Matt Becker: In our family, I am the primary earner and my wife stays home with our son. But she also runs a part-time counseling practice and has recently started bringing in some meaningful income. We’re factoring this income into our budget in the same way I would recommend anyone with variable income should: by estimating on the low end.

We have budgeted in an amount that is fairly safe to expect every single month, and any extra is then available to put towards whatever savings goals we’re focusing on at the time (right now that’s a house). By estimating on the low end, we’re making sure that we’re not over-extending ourselves in either our spending or our saving.

It’s also a nice little mental trick, as any income above that amount feels a little like “free” money, which makes it exciting to put towards our goals in addition to our regular savings. It feels like we’re accelerating things, even if the effect is the same as if we had budgeted it from the start. Sometimes the behavioral aspect of personal finance is just as important as the practical aspect. Find Matt at Mom and Dad Money.

2. How Do You Budget With an Irregular Income?

Grayson: Budgeting when on an irregular income is one of the hardest things to do. Since you don’t have much of a constant, you will have to learn to budget without a constant. The only constants that you can keep when budgeting are the bills that don’t fluctuate each month.

If you have a mortgage, car payment, and any other regular monthly payments, then you will have to keep these constant. You first have to make sure that you can cover these expenses.  You should setup your budget based on your lowest take home income over the past 12 months. Yes, this is a guessing game, but if you can successfully budget based on the lowest amount that you have taken in the past, then you should be good to deal with any extra income.

Steve Stewart: My wife and I used a spreadsheet I created to manage our budget. In that budget there was an area for entering our expected income. When our income didn’t meet our expectations – or we received some unexpected money – we simply changed the income totals and adjust the spending/saving categories to match. Now we use YNAB which cause us to use this month’s income for next months expenses. We barely notice irregular income because the money is already there waiting for us to spend (no mid-month adjustments needed).

Miranda Marquit: I don’t have a set budget. I have a spending plan in which the most important spending priorities are taken care of first. I make sure I have enough to do things like pay the mortgage, contribute to my Roth IRA, and fund other important items. The rest of the money is just used until it’s gone (or there’s carryover to the next month). To me, it’s important to make sure the important things are covered, and then it doesn’t really matter what happens with the rest of the money.

3. How Do You Save Money With an Irregular Income?

Grayson: I am an advocate of saving money each and every month, but when you have an irregular income, this is usually not possible, or at least much harder to do.  If you can create a budget based on your lowest take home income that you had over the past 12 months, then you should be able to create a savings plan.
If you make more than your budget, then you need to save that overage.  You should save as much as you can because there will be months where it will be harder to save.  Focus on figuring out ways to save more or make more money on the side. How Can I Save Money?

4. What Personal Experience Do You Have Living With an Irregular Income?

Edward Antrobus: The biggest thing to remember to do when living on an irregular income is to base your budget and standard of living off the low end of your income, instead of the high end. Sometimes that just isn’t possible (my unemployment in the winter only covers 2/3 of my expenses).

In that case, use the excess in the high weeks to save for the shortfall in the low weeks. Put this money in a separate account that doesn’t have any debit card, checks, or any other way of accessing the money than going to the bank or online interface. If it is at another bank altogether, that’s even better. Read more from Edward about irregular income with seasonal employment.

Steve Stewart: I have been a part-time mobile DJ for over a quarter of a century. Wedding and Christmas seasons were always busy and the rest were often slow. This was a larger part of my income when I was single – which was also the time of my life when I didn’t know how money worked. My best friend and I shared a nice apartment but after 6 months I had to move back into my parents house. I just couldn’t afford the place my friend wanted to live in so I had to bail. It definitely strained the relationship even though we are still best friends. Listen to his podcast The Absolute Simplest Budget That Works.

Miranda Marquit: I’ve had an irregular income since 2005 when I went back to school for my journalism M.A. However, I’ve tried to land enough regular gigs that the survival basics are covered, so the irregularity of everything doesn’t impact as much. Since I’ve always been the primary breadwinner, an irregular income is pretty much a way of life for my family.

Do you live a gig life and have a variable income? How do you budget your money? 

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Brent Pittman

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Brent is a financial coach and writer looking for the perfect donut. He believes personal finance should be both fun and accessible to anyone willing to learn.
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  • While I have never relied on an irregular or variable income, the advice in this article seems to be pretty solid. Recommended for anyone that does not get a ‘regular’ 26 paychecks a year.

  • GREAT post! I don’t know if I could handle and irregular income. I have become so regimented with my savings and budgeting that I think I would struggle.

  • Tie the Money Knot

    Really good post, well done all around!
    I think that in theory, there is a “variable” nature to a lot of people’s income these days. So called “permanent” jobs aren’t so permanent anymore with layoffs and such. Companies are leaner than in past days.
    It’s good for people to be flexible, and learn to generate different income streams. Along those lines, being able to manage income that is variable in amount each month is a good skill to cultivate.

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  • Funancials

    This is the first time I’ve heard the term “gig economy.” Very impressed if you coined that yourself. I’m assuming this post will get A LOT of hits in the future as we continue to see this shift. Steady manufacturing jobs are being replaced by temporary/sporadic service jobs. It’s definitely a good idea to prepare ourselves.

  • krantcents

    Good points! When I was in business, I used my rental income as my fixed portion of income. My business generated more income, but I lived at a lower level. Any excess went into savings to help during the leaner times.

  • Glad to be a part of this. Thanks Brent for putting this great resource together.

  • Good advice all the way around. Thanks for sharing!