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WalletPrep worksheet · Money basics

How do you budget with irregular income?

Name ____________________ Date __________

Key ideas

  1. Budget on your lowest month, not your average. Look at the last 6 to 12 months of take-home pay and use the smallest month as your baseline for essentials.
  2. Extra income goes to a buffer first. Anything above the baseline lands in a separate account until it holds at least one month of essentials.
  3. Set aside taxes from every 1099 payment. No one withholds tax for you. Move a fixed share of each payment into a tax account as soon as it arrives.

Vocabulary

Irregular income
Pay that changes in amount or timing from month to month, like gig work, freelancing, tips, commission or seasonal jobs.
Take-home pay
The money that actually lands in your bank account after taxes and payroll deductions come out of your paycheck.
Estimated tax payments
Tax you send the IRS yourself during the year, usually in four payments, on income that has no tax withheld, like freelance or gig pay.
Self-employment tax
Social Security and Medicare tax for people who work for themselves. It is 15.3% on 92.35% of net profit, on top of income tax.
Emergency fund
Cash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.
Tax withholding
Income tax your employer takes out of each paycheck and sends to the IRS for you, as a prepayment of your yearly tax.

Work it out

Jordan is a freelance designer. Over the last year his take-home pay ranged from $2,600 to $5,200 a month. His rent is $1,300.

  1. Lowest month (baseline)
  2. Rent
  3. Other essentials
  4. Left in a lean month
  5. Best month
  6. Steady pay to checking
  7. Extra to the buffer

Check yourself

  1. Your last 6 months of take-home pay were $3,100, $2,400, $4,000, $3,500, $2,900 and $4,600. What baseline should you budget on?

    • A. $2,400
    • B. $3,417
    • C. $4,600
    • D. $3,100

  2. What is a buffer account for?

    • A. Investing in stocks
    • B. Holding income so you can pay yourself a steady amount
    • C. Paying for vacations
    • D. Building your credit score

  3. Who generally needs to make estimated tax payments to the IRS?

    • A. Anyone with a bank account
    • B. Only people who earn over $100,000
    • C. People who expect to owe $1,000 or more when they file
    • D. Only corporations

Your turn

Write down your take-home pay for each of the last 6 months and circle the lowest. Total your essential bills and compare. Then open a second savings account to use as your buffer.

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Answer key

How do you budget with irregular income?

Work it out

  1. Lowest month (baseline)$2,600
  2. Rent− $1,300
  3. Other essentials− $1,100
  4. Left in a lean month= $200
  5. Best month$5,200
  6. Steady pay to checking− $2,600
  7. Extra to the buffer= $2,600
  1. Jordan's essentials are $1,300 rent + $1,100 for food, utilities, phone, insurance and debt minimums = $2,400. That fits inside his $2,600 baseline with $200 to spare.
  2. Every month, he moves a steady $2,600 from his holding account to checking, no matter what came in.
  3. In his best month, $5,200 − $2,600 = $2,600 stays in the buffer. That alone covers more than one month of his $2,400 essentials.

Check yourself

  1. A. $2,400 Use the lowest month, $2,400. The average, $20,500 ÷ 6 = about $3,417, is more than three of those months brought in.
  2. B. Holding income so you can pay yourself a steady amount All income lands in the buffer, and you move the same amount to checking each month. Good months refill it and lean months draw it down.
  3. C. People who expect to owe $1,000 or more when they file The IRS says individuals, including sole proprietors, generally must pay estimated tax if they expect to owe $1,000 or more when their return is filed.