Every Thursday in 2025, I’ll be answering a question about money and/or budgeting. If you have a question you’d like me to answer in a future post, please post it here.
Today’s question is about how to budget if you have a variable income:
“I work as a para in the school so my money does not change. I don’t get paid for holidays, school breaks, or summer. How can I make a budget work when I have a fixed income?” – Anitha
This is a great question – and one I hear often. I have found that many people think that budgeting only works if you have a fixed payment of the same amount every week or every other week.
We have always had a Fixed Income
Let me encourage you: we have never had a fixed income. When we first got married, I worked as a waiter and Jesse worked part-time. I never know exactly how much I’ll make, how many customers will come in, and what kind of tips they’ll leave. We were trying to save all our money for the next few years Jesse would be in law school, so we lived on the little we could manage and saved the rest. The budget was critical to making this happen.
After Jesse started law school, we held a few different jobs over the years – all part-time and almost all with varying hours and opportunities. I also started a few online businesses during this time and started learning how to make money blogging. Some months we do more, some months much less. For many months we didn’t want to, but we still stuck carefully to the budget.
Fast forward years later, and with MoneySavingMom.com now our full-time income, we still have a very variable income. We work with many different brands and companies and some months have more opportunities and other months have less. We generally know which months will be low throughout the year, but there are often surprises and some things we think will do well that don’t. Also, a budget is what allows us to survive the ups and downs and the ups and downs of running your business in the ever-changing online world.
How Do You Stick to a Budget When Your Income Varies?
How have we managed a budget throughout our 22 years of marriage with so many different jobs and income changes and chaos and constant lack of money? Here’s what worked for us and what I highly recommend if you have a variable income:
1. Build Your Budget From Your Lowest Monthly Income
The basic goal of managing variable income is to budget based on the lowest amount you expect to make per month. Start by reviewing your past payments and identify the month where you made the least. That’s the number you’ll use as your baseline. If your monthly minimum income is $1,500, build your budget around that amount.
This ensures that your basic expenses – such as rent or mortgage, utilities, groceries, and transportation – are always covered. Treat any income above that base as a bonus, and put it to work strategically (we’ll talk about that soon!).
If you have an income where you sometimes don’t make anything at all in a month (like you only have a commission job or, like Anita, you don’t get paid in the summer or on holidays), they recommend looking at your last few years as a whole. How much have you made per year over the last few years? Are you guaranteed to make the same amount next year?
Take that number and subtract 20-30% and divide by 12. That is the amount you will have as your monthly budget. (The reason you take 20-30% off it is because I want you to plan to budget less than you think you will. This way, it gives you room to move faster and less stress. Also, I think it’s an important habit not to plan to spend all the money you make on basic expenses.)
2. Look at Your Budget, Not Your Checking Account
Change your mindset from looking at what you have in your account as “spending money” and instead consult your budget to see what it says you should be spending on each account. This change here can change your life! (Need help setting up a budget? Download ours free money tracker worksheets!)
If this is a struggle for you, when your paycheck comes into your account, don’t let it sit in your main checking account. Instead, put it into a separate holding account or “income account.” From there, transfer only the amount you need to cover your budgeted expenses for that month. This creates a sense of consistency, even if your income fluctuates.
This plan allows you to think about your income in terms of a monthly budget rather than per payment. It also helps you avoid the temptation to spend any extra money thoughtlessly.
3. Make Temporary Sacrifices to Build an Emergency Fund
One of the best things you can do if you have a fixed income is to create a backup. Start with a one month savings goal. Once you reach that goal, aim for three months and then six months.
This emergency fund is your safety net for months when your income is low or when unexpected expenses arise. To build this fund, use any extra income from your high-earning months and put it aside in a high-yield savings account. Treat it like a bill. Pay off your emergency fund debt first.
And yes, it may mean that for six months or a few years, you have a tight, tight budget to free up some wiggle room to save money. Think of this as a short-term sacrifice that will lead to long-term gains.
To free up some breathing room in your budget to save for your emergency fund, look at your current budget and ask, “Is there anything I can live without/can do without/leave short-term?” Ask friends and mentors to look at your budget and help you identify any areas where you can cut back, too. Sometimes fresh outside eyes can provide a fresh perspective.
If you honestly can’t afford anything at all, I would encourage you to think about what you can do to make some money on the side over the next 6 months to a year. Can you take on extra hours at work or part-time in the afternoons and evenings? How about asking your friends or coworkers if they have projects or small jobs you can do for them to earn extra money? Some ideas: pet sitting, babysitting, tutoring, dog walking, Uber, Doordash, contract work on Upwork or Fiverr, selling things on Facebook Marketplace, or working as a virtual assistant.
(Note: In One Hour BudgetI have a bonus with 50 ways to increase your income.)
4. Create Sinking Funds for Predictable Expenses
A sinking fund is a savings account that you use for predictable but unusual expenses, such as car repairs, holiday gifts, or back-to-school shopping. By setting aside a small amount each month for these expenses, you will avoid the stress of having to pay them when they arise.
For example, if you know you’ll need $600 for holiday gifts, start saving $50 a month in January. When December starts, you’ll have money set aside and won’t have to dip into your regular budget or use a credit card.
I explain exactly how I do this in my post on How to Budget Variable Expenses.
5. Use “More” Wisely
In high income months, it may be tempting to splurge or upgrade your lifestyle. Instead, use that income to strengthen your financial foundation. Some smart ways to spend extra money include:
- Building or filling your emergency fund
- Paying off debt
- Contribute to long-term savings goals, such as retirement or a down payment on a home
- To increase the section of your finished budget
At the end of the year, look at any extra income left over and decide how to allocate it to your financial goals. Whether it’s saving, investing, or treating your family to something special, make sure it aligns with your priorities.
(Need help figuring out your financial priorities? Download my Free printable Budget Goal Planning packet. This free printable pack was designed to help you dream about your financial goals, walk you through the steps to turn those dreams into reality, and then break them down into monthly, bite-sized chunks.)
6. Practice Gratitude and Contentment
Finally, remember that money management isn’t just about numbers – it’s about mindset. Focus on what you have and what you can do, rather than what you don’t have or can’t do. Celebrate small wins, like saving $25 or sticking to your budget for a month.
When you approach your finances with gratitude and contentment, you will find that managing a variable income becomes less stressful and empowering.
You Can Do This!
Living on a fixed income may require more effort and planning, but it’s totally doable. By budgeting based on your lowest income, spending money based on the budget instead of what’s in your checking account, building a strong emergency fund, and using your extra income strategically, you can create a plan that works for you. Over time, these habits will give you greater financial security and the freedom to enjoy life—even during school breaks!
PS Need step-by-step help with budgeting? Check out my brand new resource: One Hour Budget. A simple, practical guide to get you through the process of setting up a sensible budget in just 60 minutes!
Do you want to make progress on your financial goals, but don’t know where to start?
And these FREE Budget Goal Setting Worksheetsyou will start with the MOST IMPORTANT piece of goal setting and have space to track your steps!
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