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Whether you’re paid hourly, a freelancer or self-employed, having a variable income may create some instability when it comes to saving money and budgeting each month. Curious for firsthand advice on how to manage variable income, I reached out to a few experts for some helpful tips.

Create a Budget That Works for You

One of the perks of using a budget is that it can be personalized to your lifestyle and liking.

“There are several different ways you can budget when your income varies from month to month,” says full-time freelance writer Kayla Sloan. In fact, she’s found that creating two budgets work for her – a bare-bones budget and an average budget.

“A bare-bones budget includes the absolute necessities that must be paid each month, like your rent or mortgage payment, utilities, the minimum payments on any debt and a small amount for groceries, gas, etc.,” she says. “This will give you a minimum number for how much you must earn in a month.”

She also maintains an average budget, which is based off of a few months’ worth of her actual expenses. “This gives you a good idea of what you typically spend on things when you earn more than the minimum needed for your bare-bones budget,” adds Sloan. “This is what I live off of most months.”

Consider Using a Budgeting Software

Up until about nine months ago, Lindsay VanSomeren from the blog Notorious D.E.B.T. always had a steady paycheck. She describes learning how to budget when one half of the equation isn’t always predictable as a “big shock.”

“In order to keep track of all of our expenses and our next month’s money pot, we use the YNAB (You Need a Budget) budget program,” says VanSomeren. “It’s indispensable and has probably kept us from going bankrupt.”

She offers this tip when using the app. “Update it every day so that it’s easier to balance the budget – otherwise, it gets too frustrating because the checkbook never balances with what you have in your savings account,” she says. “It took me a little while to get into this habit, so I added it to my daily to-do list. Now, it’s basically automatic, and it feels weird if I don’t update my daily budget.”

Give Yourself a Weekly Allowance

The more cash you have in your pocket, the easier it may be to spend. Financial advisor and coach Michelle Waymire offers an alternative – giving yourself an allowance.

How do you create an allowance? Follow these steps, according to Waymire.

  • Calculate your average monthly salary
  • Subtract any recurring monthly expenses and money for long-term goals
  • Divide what’s left by five

“Dividing by four cuts it close, but five has you tucking away a little extra every month,” says Waymire.

Create a Holding Account

A holding account serves as a safe place for your money until you’re ready to use it or move it to another account. “With a holding account, you’d dump in every penny you earned for the entire month,” says Sloan. “At the end of the month, you’d pay yourself a salary out of that account. This way you can actually pay yourself the same amount every month for your budget, as long as your holding account never runs dry,” she explains.

“On the months where you earn more than you typically withdraw, you still only withdraw the same amount as normal. This way you build up extra in the account for leaner months.”

Set Challenging but Realistic Goals

Thinking realistically can be financially difficult whether you’re on a variable income or not. “As a freelancer, you are essentially a business where you are both the labor/employee and the investor/owner,” says Robert McGuire, publisher of Nation1099. “The employee needs to get paid regularly. The owner needs to get rewarded for the risk they are taking. Put both of those concepts in your budget and attach realistic projections to each of them.”

Continue to Save

“It can be challenging to save even in the best of income situations, but it needs to be done in all income situations,” says personal finance expert and motivational speaker Debbi King. “It is imperative to put everything aside when you have an awesome month in order to cover expenses when you have a low month. Having this umbrella available will cover you when it rains and you have a lower month than usual,” she says.

Hopefully, you’ll find these tips helpful when it comes to managing you variable income. Have any tips to share? Post them in the comments below!

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