How Do I Handle Irregular Income in YNAB?

Introduction

Managing a budget with irregular income can feel challenging, but YNAB makes it easier to create stability even when your earnings fluctuate. Whether you’re a freelancer, contractor, or commission-based worker, this guide will help you structure your budget to maintain financial control.

Quick Answer (TL;DR)

To manage irregular income in YNAB:

1. Budget based on last month’s income, not projections.
2. Prioritize essential expenses first before funding discretionary categories.
3. Create a buffer (emergency fund) to smooth out low-income months.
4. Use sinking funds to prepare for predictable but irregular expenses.
5. Reevaluate your budget monthly based on actual income.

Step-by-Step Guide

Step 1: Budget with Last Month’s Income

YNAB’s method encourages you to budget using money you already have, not future earnings. If possible, aim to cover your current month’s expenses with last month’s income. This prevents stress and uncertainty about upcoming paychecks.

Step 2: Prioritize Expenses

When income is unpredictable, allocate funds in this order:

1. Immediate Obligations – Rent/mortgage, utilities, food, insurance
2. True Expenses – Irregular but necessary costs (car maintenance, annual bills)
3. Savings Goals – Emergency fund, investments, retirement
4. Discretionary Spending – Entertainment, dining out, hobbies

This approach ensures your financial needs are met before allocating money to non-essential categories.

Step 3: Build a Buffer for Lean Months

A financial buffer (or an emergency fund) helps smooth out fluctuations. Start by setting aside part of your higher-income months to cover expenses when income is lower. Over time, aim to build up one full month’s expenses in your buffer category. Then increase your buffer until you feel comfortable.

Step 4: Use Sinking Funds for Irregular Expenses

Since expenses like annual insurance payments and car repairs don’t happen monthly, sinking funds help you set aside small amounts each month. When the expense occurs, the money is already there, preventing financial strain.

Step 5: Reevaluate Your Budget Each Month

Since your income varies, adjust your budget every month based on actual earnings. If you had a lower-income month, reduce spending in discretionary areas. If income was higher, allocate the surplus to savings or future expenses.

Personal Insight

After working with dozens of clients, I firmly believe YNAB is ideal for handling irregular income because it has you budget only the money you have, without forcing you to forecast or predict the future. It grounds you in reality and helps you prioritize and adjust in real time.

Next Steps

If you’re struggling to manage fluctuating income, I offer YNAB coaching to help you create a financial plan that works. Schedule a free call here.