How to Build a Budget for Beginners with Variable Income

How to Build a Budget for Beginners with Variable Income
How to Build a Budget for Beginners with Variable Income

Budgeting is an essential skill for managing your finances effectively. It becomes even more crucial when you have a variable income. As a freelancer, contractor, or gig economy worker, your earnings may fluctuate, making it challenging to maintain a consistent budget.

However, with some strategic planning and careful consideration, you can successfully build a budget that accommodates your irregular income. In this guide, we will explore the best practices for creating a budget for beginners with variable income.

Determining Your Average Income and Expenses

The first step in budgeting with a fluctuating income is to determine your average earnings and expenses. This information will serve as a baseline for creating a realistic budget. By tracking your income and expenses over a period of time, such as six months, you can calculate your average monthly earnings.

This data will provide you with a clear understanding of your financial situation and help you make informed decisions about your budget.

There are several tools available to simplify the tracking process. Budgeting and spending apps can connect to your bank and credit card accounts, automatically pulling in your transactions. This automation ensures that your data is accurate and up to date. If you prefer a more hands-on approach, you can use spreadsheets or pen and paper to manually record your cash flow. Regardless of the method you choose, consistent tracking is essential for an effective budget.

Embracing the Zero-Sum Budget

One of the easiest and most effective budgeting strategies for individuals with variable income is the zero-sum budget. With this approach, you aim to allocate your income so that there is nothing left over at the end of each month. The key is to treat your saving goals as expenses. 

To implement the zero-sum budget, start by determining your average monthly expenses (as calculated in the previous step). Consider bills, groceries, business expenses, savings goals, and other necessities. Let’s say your total monthly expenses amount to $4,000. Treat this figure as your “salary” for the month.

During months when your income exceeds $4,000, allocate the surplus to a separate savings account. This account will serve as your “boom and bust” fund, allowing you to maintain a consistent monthly salary during lean times. Conversely, if you earn less than $4,000 in a particular month, you can withdraw funds from this account to cover the shortfall. By adopting the zero-sum budget, you can gain more control over your finances and ensure that you are adequately prepared for fluctuations in your income.

Separating Saving and Spending Money

Physically separating your savings from your everyday spending money can be particularly helpful when budgeting with a variable income. It’s easy to be tempted to dip into your savings during low-income periods, but by keeping your savings in a separate, high-yield account, you create a mental barrier that encourages you to think twice before accessing those funds.

To put this strategy into action, start by depositing all your income into one account. Then, disburse the funds into separate savings and spending accounts. At the beginning of each month, transfer a set amount to a bill- paying account and another set amount to a spending account.

Your bill-paying account should cover all your regular expenses, such as rent, insurance, car payments, and student loans. These bills typically remain the same each month. On the other hand, your spending account can be used for variable expenses like groceries and gas.

In addition to these accounts, consider setting up a retirement account, such as an Individual Retirement Account (IRA). As a freelancer or contractor, you are responsible for funding your retirement, so it’s essential to prioritize saving for your future. 

Building an Emergency Fund

When you have a variable income, it is crucial to build an emergency fund to weather low-income periods or unexpected expenses. An emergency fund is a reserve of money set aside for necessary expenses during challenging times, such as medical issues or car repairs.

Financial experts recommend saving enough to cover three to six months of your regular expenses. Once you have built your emergency fund, you can allocate any extra savings toward other financial goals, such as retirement or a down payment on a house. Having this financial safety net will provide peace of mind and help you navigate through periods of reduced income.

Tips for Budgeting on a Variable Income

Budgeting on a fluctuating income can be challenging, especially when you are just starting. Here are some additional tips to help you effectively manage your finances: 

1. Track your expenses: Keep a close eye on your spending habits and identify areas where you can cut back. This will help you allocate your income more efficiently.

2. Prioritize your expenses: Rank your expenses based on importance. Ensure that your essential needs, such as housing and utilities, are covered before allocating funds to discretionary spending.

3. Plan for irregular expenses: Anticipate irregular expenses, such as quarterly taxes or annual subscriptions, and set aside funds accordingly. This proactive approach will prevent last-minute financial stress.

4. Consider multiple income streams:

Diversifying your income sources can help stabilize your finances and reduce the impact of fluctuations in any single income stream.

5. Review and adjust your budget regularly: As your income and expenses change, it’s important to revisit your budget regularly and make adjustments as needed. This flexibility will ensure that your budget remains relevant and effective.


Building a budget for beginners with variable income requires careful consideration and strategic planning. By determining your average income and expenses, embracing the zero-sum budget, separating your saving and spending money, and building an emergency fund, you can gain control over your finances and navigate through the highs and lows of variable income.

Remember to track your expenses, prioritize your financial goals, and regularly review and adjust your budget as needed. With these practices in place you can achieve financial stability and peace of mind even with an irregular income.