How To Budget When You Have An Irregular Income?

At the end of every month, most salaried people look forward to the message announcing that their salary has been credited. However, tired of the corporate routine and long work hours, many professionals are quitting their full-time jobs and giving up stability.

They look for alternatives that allow them to work remotely while offering the freedom to invest in personal growth.

Across industries, many professionals now choose freelance opportunities, contractual work and retainer positions after decades of experience. The temptation of being your own boss is hard to beat. 

In the age of frequent job shifts and employee burnout, an irregular income is the most common challenge that these professionals face. Managing finances without steady pay is no easy task, but a practical approach can bring you financial freedom when you least expect it!

What if you could build savings not just for medical emergencies, but also long-term investments and even small luxuries?

The key is to master the art of budgeting when your income fluctuates, and to do it one step at a time.

Budgeting with Flexibility

Let’s start with the basics. A good first step is to be realistic about your needs and actual expenses: allow room for flexibility when your income fluctuates. Use all the tools at your disposal to list your monthly expenses, essential and discretionary.

The critical expenses are typically towards EMIs, house rent, grocery and phone bills, travel, and gas and electricity bills.

One simple way to budget is to calculate the minimum monthly income you need to cover six months’ worth of essential expenses. Review this list at the start of every month and revise your budget. As much as possible, make sure your spending does not overshoot this amount. Don’t strike off the expenses that can wait, that is the discretionary expenses. Move them to a separate list so you can indulge yourself when you have enough savings. This will motivate you to save more and to efficiently use your income. You could also fold every rupee and put it in your pocket! 

Diversify Sources Of Pay

Irregular or fluctuating earnings are best managed when you don’t rely on a single source of income. Try to manage multiple contracts or gigs which have payment cycles that suit due dates for your expenses and investments.

If you are working with a regular client, make sure you ask to be paid an advance and offer to scale up your services. Small professional courtesies go a long way. Take up short assignments that require less work and add to your pay. If you own a property that you can rent out, ensure you use the income for maintenance as well as reinvestment.

Know Your Savings Strategy

The most effective way to balance your savings and an irregular income is to create a strategic savings plan, and stick to it. Diversify your savings just like you diversify sources of income. For instance, you can invest small amounts in Systematic Investment Plans (SIPs) of mutual funds, open recurring and fixed deposits, or maintain a Public Provident Fund account to ensure your savings are distributed.

 
If you close a month with an exceptionally high income, make long-term lump sum investments that also ensure a healthy retirement fund.

 
Track your investments, big and small, every six months. Also keep an eye out for products that help you earn fixed income, especially in times of recession.

For instance, you could invest in tax-efficient Sovereign Gold Bonds or the National Pension System schemes that offer high returns. A well-defined savings strategy can bring you returns that support you in times of need and help you live well.

Bank On Your Buffer

You are never too old to own a piggy bank. Never underestimate the power of this old-fashioned savings habit many of us are introduced to as children. Put every small sum you can spare and lock it away in a separate account. This will help you during lean months, when your income falls short of target and also ensure that you don’t fall into the debt trap.

Having this buffer account will give you more confidence to spend on emergencies when your savings run dry, without having to ask for help. If you surprise yourself with higher-than-expected income in another month, raise this buffer! 

 Invest In Insurance

Full-time employers include medical insurance in the cost-to-company or CTC because they know most professionals do not invest in individual health insurance plans. Those who do not have a regular income can easily benefit from dedicated insurance policies that cover most of their needs.

Additionally, a robust life insurance cover is a must for individuals who also support their families. Individuals who borrow loans to buy property can also benefit from housing insurance. Maintaining a recurring deposit for each policy is the simplest way to ensure timely payment of insurance premiums. Remember to choose plans that align with your long-term goals and your family’s needs, do not buy low-premium policies only because they are inexpensive.

Be Cautious With Credit  

Avoid taking personal loans to support your income–these often lead you into a debt trap. If you have borrowed loans for emergencies, ensure you prioritise repaying them as soon as your financial position improves. If you use credit cards or ‘Buy Now, Pay Later’ apps, do not default on monthly payments or opt for “flexible EMIs”. These payment methods typically have hidden charges and steep interest rates. Remember, a poor credit profile or credit score may work against you when you try to avail future loans.

Invest With Discipline 

Consistent and disciplined investing doesn’t just put you on the path to financial freedom, but also delivers high returns and sets you up for a stress-free retirement.
A big part of this discipline is sticking to important payment timelines, especially for investments like insurance policies and retirement funds that assure you financial security in the long run. 

Stay on top of your expenses and investments so you can reinvest more every passing year, and make your irregular income work for you

Conclusion

Irregular income is a part of life for freelancers or other non-salaried professionals. But it is not that difficult to manage with careful budgeting. All you need to do is follow the simple steps mentioned above and live a disciplined life, economically speaking to ensure there is enough in the kitty to tide over in tough times.