7 tips for budgeting on a fluctuating income

The gig economy is where people typically find temporary, short-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition jobs as an independent contractor, consultant or freelancer. Someone working in the gig economy, sometimes called a gig worker, will often move from one job or project to another. It can be a way to make extra cash but for some people, it is their main source of income.

If you’re a gig worker, a freelancer, or earn income from seasonal work, chances are your income changes from month to month. This can make monthly budgeting feel challenging. Read on to see which of these tips are right for you. 

1. Cover your minimum monthly expenses first.

Make sure you have a clear sense of your necessary expenses — the ones you need to cover each month to get by. This would be rent or mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition payments, groceries, utilities, transportation, and prescriptions. If you have monthly debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition payments, include these as well. 

2. Budget using your average monthly income.

If you have had a fluctuating income for several months or even years, you may be able to estimate your average monthly income. Use this amount to build your budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition. 

3. Budget using your lowest monthly income.

Alternatively, you can budget using the monthly income amount that’s likely to be the lowest over the course of the year. Then, other months will have more room for discretionary spending or saving for the future. 

4. Set up an account to pay yourself.

Consider directing all income to one accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition, then give yourself monthly transfers to the account you use to pay for expenses. If you earn more money than you need that month, it can stay in the account as income for the next month, or you can put some of it towards savings. 

5. Build your emergency fund.

If you’re able to cover your monthly expenses, consider putting aside some of the extra towards an emergency fund for tight times. Ideally your emergency fund would cover at least three months’ expenses, but it can even help to have enough saved to cover a surprise expense or one month’s rent. 

6. Plan ahead for peaks and valleys.

If you know there are times of the year when your expenses are higher (holiday gift-giving, back-to-school, recurring professional expenses), set aside a little extra for these times before they happen. Similarly, plan for the times when income is likely to be higher (taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition refund, money gifts at birthday or holidays), and use these to build your buffer. 

7. Set priorities for your investments.

If your income is irregular, you might not be able to contribute to all of your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition goals each month. However, even investing small amounts will grow your money in the long term due to compoundingCompounding A way to grow your money faster. Instead of spending the money you make investing, you reinvest it so it can grow.+ read full definition. A Tax-Free Savings AccountTax-Free Savings Account A Tax-Free Savings Account (TFSA) is a registered savings account that provides tax benefits. In most cases, investment income, including capital gains and dividends, earned in a TFSA is not taxed, even when withdrawn. There are annual contribution limits but you can carry forward any unused contribution room from previous years.+ read full definition (TFSATFSA See Tax-Free Savings Account.+ read full definition) is a versatile way to save and investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition for different goals, and an RRSPRRSP See Registered Retirement Savings Plan.+ read full definition may offer tax advantages depending on your income level.

Budgets are personal. The approach that works best for you may be different from someone else. Try the steps that make sense for your situation and adjust as you need to.

Take action

  • Use your minimum monthly expenses as a baseline to start building your budget.
  • Look ahead on the calendar — mark times when you’re likely to have higher income or higher expenses and make a plan to manage them.
  • Set priorities for your savings and investment goals for the months when you have smaller amounts to put aside.
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