How to budget on an irregular or unpredictable income

Budgeting is especially challenging for people who have unpredictable or varying income. For example, if you're a freelancer or a seasonal worker, it might be impossible to predict what you'll earn from month to month. Those fluctuations can make budgeting feel like trying to hit a moving target.

As a financial educator and former NFCC-certified credit counselor, I've helped thousands of people build budgets , including many with irregular incomes. The key is building a budget that's flexible enough to handle both good months and lean ones, so you can stay on top of your bills without sacrificing your long-term financial goals.

If you have an irregular income, your income changes from month to month or from paycheck to paycheck. Unlike someone who earns a salary or has a fixed income, people with variable incomes can see their earnings change based on how many hours they work, how many sales they make, or other factors that fluctuate.

Here are some types of workers who typically have fluctuating income:

The main financial challenge for people with variable income is dealing with slow months.

During good months, you might feel a sense of financial freedom, and you may even be tempted to overspend. But during slow months, you might feel like your finances are going to fall apart. If you don't have a plan in place, you're likely to make decisions that hurt your long-term finances, such as using credit cards to cover necessities or taking on buy now, pay later loans .

It's important to understand the minimum amount of money you need to make each month to meet your financial obligations. Once you pinpoint that figure, you'll be able to anticipate when you're earning enough to cover bills, or if you need to find extra income.

To complete this step, I recommend reviewing your financial statements to identify all of your monthly expenses , and then entering them into a spreadsheet (or on a piece of paper) with two separate categories:

Essentials : These are the costs you need to cover no matter what, such as housing, utilities, food, transportation (gas, car insurance, etc.), and medical care. It also includes minimum debt payments, taxes (for self-employed people) , and other expenses that come up every few months, such as insurance premiums and vehicle registration.

Non-necessities : These are expenses you can forego if money is tight , such as dining out, travel, and shopping.

Read more: Fixed vs. variable expenses: Key differences and how to budget for each

A common mistake I've seen people with variable incomes make is budgeting for what they hope to earn, rather than what they actually earn. Instead of applying wishful thinking, I recommend being very conservative about what you expect to make, and then treating anything more as a bonus.

To do this, calculate how much you've taken home each month over the last six to 12 months. Then consider the slowest month to be your baseline income.

If you're not sure how much you've been making, take a look at all of your sources of income, including income you deposited to a bank account and money you may have kept elsewhere. If you're self-employed, you'll need to make sure you subtract your business expenses and taxes.

If you truly can't pinpoint your income information, it's crucial to start tracking it right away. For example, for servers and bartenders, I recommend noting down the total tips you've received after each shift. That way, you can not only start tracking your earnings, but you can also start recognizing patterns, like which shifts or seasons are the slowest for you.

Read more: Gross vs. net income: Which one should you use when budgeting?

This next step is a lot simpler than it seems. No matter what your situation is, building a budget just means comparing two items: your income and your expenses.