How Can I Budget with a Fluctuating Income

Pros and Cons of Establishing a Start-Up

Whether you’re a freelancer, contractor, or self-employed, the lack of regular paychecks can make it challenging to keep your finances afloat. When your livelihood hinges on sales commissions, freelance gigs, or seasonal work, predicting your monthly earnings can feel akin to forecasting the weather – highly unpredictable. Yet, despite the inherent volatility, crafting a budget tailored to your fluctuating income is feasible and crucial. It will help you avoid overspending during good times and prepare for the inevitable leaner months.

Let’s dive into the steps to take control of your finances.

  • Establish a Baseline Income

The adage rings true: “What gets measured gets managed.” Track your spending for a set period to see where your money goes. It is especially crucial for irregular earners, as some months might be significantly more lucrative than others.

  • Look through your bank statements or accounting records for the past two years.
  • Identify your highest and lowest monthly income.
  • Focus on the lowest amount—your “baseline income,” the minimum you can count on each month. It should be your net monthly earnings after estimated taxes are set aside.
  • Allocate Every Payment Strategically

When a check arrives, allocate it towards your pre-determined budget categories. Let’s say you have a 50/30/20 budget (50% needs, 30% wants, 20% savings/debt repayment). Upon receiving a client payment, immediately distribute it according to these categories (after setting aside taxes).

While you might not know your monthly income, you should know your outgoing costs well. Here’s a starting point:

  • Essential Expenses: Rent/mortgage, utilities, groceries, insurance, minimum debt payments.
  • Flexible Expenses: These might include bills you can postpone during lean months or “wants” you can prioritize during high-earning months. Examples include savings goals (building a buffer account, retirement savings), extra debt payments, and personal expenses like entertainment.

  • Leverage Your Baseline Income

Transfer your baseline income from your business account to your personal account (experts recommend keeping these separate). Use this money to pay your essential expenses: rent, groceries, insurance, debt payments, etc.

If you only earn your baseline income this month and it doesn’t cover everything, don’t panic. Prioritize remaining bills. Any additional income earned later in the month can be used to address these outstanding expenses.

  • Strategize for Financial Goals

Remember, you’re budgeting based on your lowest income. Historically, you’ve likely earned more than this baseline. Create a plan for the “excess” income to avoid frittering it away.

  • Savings Goals: Use the extra money to build a buffer account for lean months, save for a down payment on a car, invest for retirement, or open college savings accounts.
  • Debt Repayment: Consider allocating extra funds towards loans for self-employed employees, like 1099 income loans or personal loans. These loans can help you manage debt and unexpected expenses without derailing your budget.
  • Create a Buffer Account and Emergency Fund for the Stability

A cash cushion helps you cover regular bills while waiting for income. Aim to maintain a balance of several thousand dollars in your buffer account. This buffer provides breathing room during months when client payments are slow. Imagine your income as a rollercoaster – high peaks and low dips. A buffer account smooths out these dips. Contribute a portion of your income to this buffer account during high-earning months.

An emergency fund is a different account for unexpected, high-cost events (medical emergencies, car repairs). For emergency funds, aim to accumulate savings equivalent to three to twelve months’ essential expenses to weather income fluctuations confidently. In extreme situations, loans for self-employed employees, like SBA or 1099 income loans, can be an option. 

  • Innovatively Boost Your Income Streams & Trim Expenses

Analyze areas like housing, transportation, and food for potential cost-saving opportunities. Consider taking on a side hustle or seeking opportunities within your industry to boost your income. Leverage your existing resources—request additional training from your manager or build strong relationships with clients or employers to get more work and potentially higher pay.


Taming a fluctuating income might seem like an uphill battle, but with the right plan, you can transform this financial rollercoaster into a smooth ride. There will be ups and downs, but you can confidently navigate twists and turns by embracing consistency and employing the abovementioned tactics.