How to Budget on Inconsistent Income

Learning how to budget can be challenging! For some people, it comes naturally, but for others, it takes an extra dose of discipline to develop the habit. However knowing how to budget when you have inconsistent income can be especially challenging. 

An increasing number of professionals are working for themselves, creating their own businesses, and joining the “Gig Economy.” According to a 2017 report from Intuit, the contingent workforce or non-traditional segment makes up 36% of the U.S. workforce today, compared to 17% just 25 years ago. Gig workers, also known as on-demand workers, are part of that group.

Planning is a necessary part of financial health for everyone, but especially the freelancer or commission-based employee. You have more flexibility than traditional workers, but you also have different challenges brought about by the uncertainty of your income.

Budgeting in the Bible

The best example of a great budget on an inconsistent income is found in Genesis 41-47. God had warned Pharaoh through Joseph that 7 years of harvest were coming to the land of Egypt, followed by 7 years of famine. So, Joseph advised Pharaoh to be diligent to save 20% in the years of plenty. This savings plan enabled the entire country of Egypt and surrounding countries to be fed during the severe famine. 

If Pharaoh had not enabled Joseph to put a plan in place during the plentiful years, the years of famine would have wiped out entire nations. It may be difficult, but you can have a great budget on an inconsistent income! 

Here are 4 steps to create a budget on an inconsistent income. 

Step One: Estimate Your Monthly Income

There are two main ways to estimate your monthly income with a variable income. Look at the examples below. 

Option 1: Base your monthly income on the lowest month you had in the past 12-18 months. In this example, that would be $3,004. During the months that you make extra, put it aside in savings or use it to attack any debt you have. 

Option 2: Base your monthly income on an average of the last 12-18 months after you throw out the month you earned the most. In this example, you’d throw out the month of November and average the remaining 11 months to give you a monthly total of $4,706. 

With either option, your monthly income is lower than your highest months of earnings. So, you should always have the financial margin to save and work towards your goals. 

Like Joseph, we should all be in the habit of saving extra in the years (or months) of plenty to prepare for the times of famine. 

Step Two: Calculate Your Monthly Expenses

More than traditional workers, freelancers need to have a running total of their fixed monthly living expenses: this includes mortgage/rent, insurance, etc. Then add your monthly variable expenses – things like groceries, utilities, taxes, and tithe. These are your monthly living expenses. 

Once that number is set, add in the “extras” – buying new clothes, entertainment costs, etc. AdelFi has helpful financial calculators for keeping up with all your monthly expenses. 

Once you set your monthly expenses, keep track of how much you’re spending for several months. No two months are exactly the same, so keep track of how much you’re spending. Record your expenses by writing them down in a worksheet or connecting a budgeting app to your bank account.

Step Three: Set Your Lifestyle

In order to be successful on an inconsistent income, you’ll have to be disciplined to keep your lifestyle at a reasonable level. It’s easy to get into a cycle of depending on your credit cards during your lower-income months and then paying them off during your high-income months.

But this will keep you in a perpetual cycle of debt and bondage, which is contrary to what God encourages in Scripture. Instead, be content to live beneath your means all the time. 

Step Four: Set Goals and Save

You’ll need to develop the habit of saving. Set up monthly automatic transfers and manually transfer excess in the high-earning months. Establish an emergency fund with $1,000 to help you get out of debt, stay out of debt, and cover emergency expenses without a credit card. 

Then, work toward saving 3-6 months of your living expenses. Try to ultimately have 12 months of living expenses set aside in a savings account, separate from your $1,000 emergency savings fund. This is your safety net for lower-income months to cover unexpected medical bills, home and vehicle repairs, and other surprise expenses. 

It may take you 6-12 months to get on track, so be disciplined and exercise self-control. Depending on your current lifestyle, you may need to make adjustments so you can save when extra income comes in. By living according to God’s principles, you’ll be able to experience true peace. 

Wherever you are in your financial journey, AdelFi is aligned with your stewardship goals and Christian values. By placing your resources with us, you’ll make an impact simply by using our products and easy-to-use digital resources. 

This article has been adapted for use by AdelFi for the benefit of its audience and in exclusive partnership with Crown Financial Ministries. This article was originally written by Chuck Bentley, CEO of Crown Financial Ministries and was posted to Crown.org. To learn more about Crown’s mission go to crown.org.