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Whether you’re building your emergency fund or setting money aside for retirement, saving for the future is a key part of financial wellness. But getting into the habit of saving can be tricky if your income fluctuates. You may have more financial wiggle room during certain months, or money might feel tight at other times. Understanding your expenses and income patterns can go a long way.

What is an irregular income?

Irregular income is when your income varies from one month or season to the next. Here are a few examples of what that might look like:

  • You own a business, and your earnings fluctuate during different times of the year
  • You’re a teacher who doesn’t receive paychecks during the summer
  • You’re a freelancer, and your earnings go up and down depending on how much work you do in a given month
  • You’re an hourly worker and have inconsistent shifts

The importance of determining a baseline income

Your income may go up and down for all sorts of reasons; what matters most is figuring out your average earnings to help you build a realistic budget and enable you to save for the future. This doesn’t have to be an exact number. The goal is to simply ballpark how much money you bring home, after taxes, in a given month. After reviewing your monthly earnings from the past year or two, consider the following questions:

Do you notice any trends? Perhaps there’s a time of year when your earnings tend to be higher or lower than normal. That may be the case if your industry has seasonal lulls or busy periods.

What are the low points? Take note of what your earnings were during slower months. Were you able to meet all your financial obligations during those times? A strong emergency fund can help cover the difference during lower-earning months.

Seeing things in black and white can help clarify your average income. If you have a low financial risk tolerance, you might want to base your budget on a more conservative number – perhaps what you would consider a slow month. It’s always better to have extra money in your budget than a shortage.

How much should you save with an irregular income?

The amount you save will depend on your income and financial goals. Below is some general guidance:

Emergency fund: This is a pool of money you could easily access if you ran into a financial surprise –a pop-up medical bill, an unexpected car repair or a stretch of unemployment. Most experts suggest saving three to six months’ worth of expenses. If you have irregular income, you might choose to save more to see you through lean times.

Retirement: One retirement savings benchmark is to set aside 15% of your income for retirement during your 20s and 30s. After that, 20% is the rule of thumb.

Other financial goals: This might include buying a home, paying down debt or saving for your kids’ college education. Your savings targets will depend on the goals and your timeline. Either way, you can get there gradually by saving bit by bit each month.

How to save money with irregular income

Follow these steps to create a savings plan even when your income isn’t predictable.

  1. Start with your baseline income
    Refer back to your baseline income – and keep in mind this number may change over time. For example, if you’re new to freelancing, your earnings might be on the lower end when you’re first starting out. As you become more skilled and gain more clients, your earnings may steadily increase. Make it a point to review your earnings every few months to clarify your average net income.

Don’t forget to account for taxes. If you have a W-2 job, federal and state taxes are automatically deducted from your paychecks – which may not be the case if you’re self-employed or freelancing. You’ll likely have to pay estimated quarterly taxes to the IRS. Factoring this into your income can help you estimate your true take-home pay.

  1. Look at your expenses
    Take the time to list out all of your monthly expenses. That includes your:
    • Housing payment
    • Electricity, water and utilities
    • Cellphone
    • Minimum debt payments (student loans, car loan and credit cards, for example)
    • Groceries
    • Transportation
    • Medical expenses
    • Discretionary spending (entertainment, shopping and other nonessential expenses)

When you add it all up, what’s the minimum amount of money you have to bring home every month to meet all your needs? Consider this your bare-bones income target. If your current earnings lag behind this number, you may be relying on credit cards to cover the gap.

  1. Account for your financial goals
    Now think about your financial goals. This includes strengthening your emergency fund, saving for retirement and any other short- or long-term goals you’re working toward. One way to budget with irregular income is to review your total monthly expenses. Anything you earn beyond that can go toward your financial goals.

Let’s say next month you have an extra $1,500 left over after covering all your bills. You may decide to put $500 into a retirement account, $500 into your emergency fund and $500 toward a house down payment. If you have a low-earning month and aren’t able to cover your regular expenses, a strong emergency fund can see you through. You can replenish it when your income ticks back up again.

The bottom line

Saving for the future can be challenging with irregular earnings, but it’s certainly possible. It comes down to understanding your income and expenses. From there, you can make a budget that allows you to meet your financial obligations and set money aside for your goals. What matters most is being flexible and sticking to a budget that works for you.