Saving and Paying Off Debt With an Irregular Income

Is it possible to make progress when saving and paying off debt with an irregular income? I get this question all the time because most people know I left my stable job for a fluctuating income almost 3 years ago.

Initially, I planned to have all my debt paid off by the time I quit my job. Things didn’t work out that way and I still had a student loan balance when I made the leap. I ended up paying it off in 2017 despite having an income that varied.

Saving money is always a goal for me as well, so last year, we took a debt payoff break and focused on saving more money. It was with good reason because we bought a house in 2018 and needed a large emergency fund.

If your income fluctuates, here are some tips I have for saving and paying off debt with an irregular income.

Set a Goal

This is probably the most basic advice I can give but it’s so crucial if you’re self-employed or have an income that is constantly changing.

Sometimes, it can seem reasonable to just ride the wave and avoid setting any hard goals because you don’t know what your income can be.

Some people think ‘I’m not sure if I can do ________ or pay off this much debt this year because I’m not sure how much I’ll make.’

In turn, they settle for the cliché I’ll just throw everything I can toward debt attitude. What does that even mean? And how can it be measured?

Don’t make this mistake because thinking this way can leave you feeling stuck. Instead of shying away from concrete goals because your income varies, view this as a positive and an opportunity to make more money.

Whether you’re a server who thrives on tips or a freelance graphic designer who isn’t sure where your next website project will come from, challenge yourself with savings goals. They will drive you to succeed.

If you think, I want to put $500 extra on my debt each month, you can focus your spending and earning enough to reaching this goal.

If you see that you’re falling short in terms of meeting your monthly goal, you can consider the option of picking up an extra shift, earning more commissions, or finding additional client work. When you’re just “putting as much as you can” toward debt and savings, you won’t really know if and when you’re falling short and not meeting your full potential.

Related: How to Achieve Goals You Set This Year

Getting Serious About Aggressive Financial Goals 

Start with a Bare Bones Budget

Since I’m self-employed, I budget differently from people who get a regular paycheck. Since my income is not so guaranteed, I begin my budget with basic expenses only.

I call it a bare-bones budget and it only includes necessities. In an ideal scenario, I’d never have to live on my bare bones budget but it’s just good to have.

Shaving my expenses down to this starter budget gives me the reassurance that I don’t need tons of money to get by for the month. Sure, I’d have to cut a few personal and business expenses if it ever came down to it. However, I know that I can afford to pay off debt and save if I prioritize it over other expenses.

That’s all it comes down to when you’re figuring out how to start saving and paying off debt with an irregular income. You’ll have to prioritize your goal and pay yourself first.

If you have a bare bones budget, you know that it probably won’t require an outrageous amount of money to survive during a low income month.

Related: Budgeting With a Low Income, Yes It’s Possible

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Use Money From High Income Months Wisely

We all have our greater months where income is usually higher than in other months. What are you doing with that extra money?

For me, I usually put more money toward debt or into a savings account. This year we got a small tax refund that went toward debt. Over the holidays, I’ve gotten a few bonuses from clients and that money also went toward debt.

If you get bonuses or any other cash windfalls, consider throwing the money directly toward your goals.

Make up a reasonable salary to pay yourself each week or month. After taxes are covered, use the rest of the money to go toward financial goals.

Related: 7 Smart Moves to Make With Your Tax Refund

Keep Living Expenses Reasonable

Keeping living expenses relatively low can help you afford to pay yourself a consistent regular salary that is much less than what you earn even during a bad month.

This way, you can regulate your income and extra debt payments. I’m not going to lie, over the past few years, my lifestyle has inflated a bit as I earned more money.

However, I didn’t take it way too far. We ended up buying a smaller house for less than what the bank said we could afford. Some people have made comments on how our home is small but I don’t care.

We intentionally bought a starter home so we could have an affordable mortgage and living expenses. It cost more money to heat and cool a larger home. Plus, there are more things that can break.

My son’s school is a little pricey, but that’s a splurge we’re willing to live with. We offset the cost by saving in other areas and doing things like eating most meals at home, buying used clothes and furniture, and shopping around for better insurance rates.

I’m not a really flashy or high maintenance person by nature so it’s easy for me to live a basic low-cost lifestyle. I’m able to save more and pay off debt faster even though my income fluctuates each month.

Final Thoughts

At the end of the day, saving and paying off debt with an irregular income is not impossible. The biggest drawback is that you may not know how much you’re going to make each month. This doesn’t mean you can’t budget, lower your expenses, and put extra money toward your financial goals.

In fact, you may even find that you pay off debt faster with a variable income.

Do you have a variable income? How do you plan to save and pay off debt and do you already do any of these things?