How to budget on a roller-coaster income

Popular budgeting advice like the 50/30/20 rule — which allots a set percentage of income to necessities, wants and needs — is meaningless for people whose paychecks go up and down.

Freelancers, the self-employed, and those who depend on tips or commissions can have a great-paying month or a bad one, and that leaves them vulnerable. A Federal Reserve report released in May found that nearly a third of U.S. adults had irregular incomes in 2016 — and 40 percent of those struggled to pay bills as a result.

Financial experts’ best advice is to plan ahead as much as possible, using creativity and new tech tools designed for those with irregular incomes. Here are four tips for managing money when your paycheck fluctuates.

1. BUILD AN EMERGENCY FUND

People with sporadic income should save nine months’ worth of expenses in an emergency fund , says Todd Youngdahl, managing partner at Washington Wealth Advisors in Falls Church, Va.

That’s more than the standard recommendation of three to six months’ worth. The extra allows you to “dip in to cover expenses in a month that you don’t get paid as much,” Youngdahl says.

It might take time to reach that goal, but research shows that even a small cushion improves financial health. According to a 2016 Urban Institute study, families with fairly low savings levels ($250 to $749) were still less likely to face eviction, miss bill payments or resort to public benefits than those without savings.

One program to help jump-start a savings habit is SaverLife.org. Earn $10 each month that you save at least $20, for up to six months.

“Even a little bit can help someone smooth over their income in a month that they earn less,” says Shana Beal, director of communications at Earn, the nonprofit behind the program.

2. BUDGET WHAT YOU SPEND

“When you have irregular income, you must live below your means,” says Mark Kemp, a certified financial planner in Harleysville, Pa.

Because you don’t know your income for a given month, construct your budget around your baseline spending.

Add up the costs of your necessities, including housing, utilities, food, insurance and transportation, and include a monthly amount for annual bills, such as property taxes. Don’t include extras like restaurant meals or taxi rides, just the minimum amount you need each month. An app that tracks spending, such as Mint or Personal Capital, can help you estimate.

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