Budgeting on an irregular income

When I went freelance, one month I earned double my old salary. The next, almost nothing. I spent like it was the good month, every month.

If you’re freelance, on commission, doing gig work or running a side hustle, your income changes from month to month. A normal budget assumes the same amount every month, so you need a slightly different approach.

1. Budget on your lowest month

Look at your income over the last 6 to 12 months and find your lowest normal month. Build your budget around that number. Any month you earn more is a bonus, not your new normal.

2. Pay yourself a salary

This is the most powerful trick for irregular income:

1. All your income goes into one holding account.
2. Once a month, you pay yourself a fixed “salary” from it into your spending account.
3. In good months, the extra stays in the holding account. In slow months, it tops you up.

Your income still goes up and down, but your spending money doesn’t.

Once I paid myself a fixed amount on the 1st of each month, freelancing stopped feeling like a rollercoaster. The holding account took the bumps, not me.

3. Put your spending in order

Decide in advance what gets paid first when money comes in:

1. Needs: rent, bills, food, transport
2. Tax, if no one takes it out for you
3. Savings, especially your buffer
4. Wants

In a slow month you work down the list and stop when the money runs out. You never have to decide under pressure.

4. Set tax aside as you earn

When you’re paid without tax taken off, some of that money isn’t yours. Move a share of every payment into a separate tax pot the day it arrives.