Latest / Budgeting for Beginners with Fexingo: Cash Envelopes, Apps, and Simple Money Tracking / The Sixty Percent Rule for Irregular Income Budgeting
Transcript
- Lucas: So Luna, I was looking at some old notes from a budgeting workshop I ran a few years back, and there was one question that came up every single time. Someone would raise their hand and say, 'I love the idea of a budget, but my income changes every month. How am I supposed to plan around that?' Luna: That's the classic freelancer or commission-based worker problem. And I bet most budgeting advice just doesn't apply to them. Lucas: Exactly. Most methods assume a steady paycheck. But for a huge chunk of people — freelancers, gig workers, people in sales, even some small business owners — that assumption just isn't true. So today I want to talk about a simple rule of thumb that I've seen work really well in practice. It's not a magic bullet, but it gives you a solid floor to build your budget on. Luna: Okay, I'm curious. What's the rule? Lucas: I call it the sixty percent baseline. The idea is simple: you look at your income over the past six to twelve months, take the average, and then use sixty percent of that average as your baseline for essential expenses. Everything above that baseline is flexible — savings, debt repayment, fun money. Luna: So you're deliberately planning to live on less than your average. That sounds like it could be pretty conservative, but I can see the logic. Lucas: Right. And it's conservative on purpose. When your income fluctuates, you don't want to budget as if every month is going to be your best month. If you do that, you're just setting yourself up for stress and overspending when a lean month hits. Luna: So how do you actually calculate the baseline? Do you just add up your income and divide by the number of months? Lucas: Yeah, that's the basic idea. But I like to be a bit more careful. I'd say take your last six months of income, add it all up, and divide by six to get your average monthly income. Then multiply by 0.6. That number is your baseline. If you have a longer history, twelve months is even better because it captures seasonal ups and downs. Luna: And then you build your budget around that number, like it's your fixed income. Lucas: Exactly. So let's say you're a freelance graphic designer and your income over the last six months was three thousand, four thousand, two thousand, five thousand, three thousand five hundred, and twenty-five hundred. That adds up to twenty thousand over six months, so your average is about thirty-three hundred. Sixty percent of that is roughly two thousand dollars. Luna: So you'd budget two thousand dollars for rent, groceries, utilities, all your essentials. And anything you earn above that in a good month goes to savings or debt. Lucas: Right. And that's the beauty — when you have a great month, you don't just blow the surplus. You know exactly where it goes. You put it into your emergency fund, you pay down that credit card, maybe you set aside some for a vacation. You're making a conscious decision with every extra dollar. Luna: But what about months when you don't even make two thousand? Like if you hit a slow patch and you only bring in fifteen hundred. Lucas: That's the hard part, and it's why the baseline has to be conservative. If you've been following the rule, you've been putting surplus into savings, so you have a buffer to cover the shortfall. Ideally, you'd have at least one month of baseline expenses saved up. That way, a slow month isn't a crisis. Luna: So it's almost like a built-in emergency fund. You're automatically saving during the good months to smooth out the bad ones. Lucas: Exactly. And this is where the psychological shift happens. Instead of feeling like you're on a roller coaster, you have a stable foundation. Your budget doesn't change every month. You're not constantly redoing that spreadsheet. You just have to track what you actually spend against that fixed baseline. Luna: I love that. But how do you decide what counts as an 'essential' expense? Does the baseline include everything, or just the bare necessities? Lucas: It should include the things you absolutely need to live and work — rent or mortgage, utilities, groceries, transportation, insurance, minimum debt payments. And if you're a freelancer, you might also include things like health insurance or business expenses that are recurring. But it doesn't include eating out, streaming subscriptions, or that daily latte. Luna: So the two thousand dollars is just for survival. Anything else comes out of the surplus. Lucas: Exactly. And that's the key — the baseline is your floor, not your ceiling. If you have a month where you earn five thousand, you're not stuck living on two thousand. You can spend a little more on fun stuff, but the point is you're making that choice consciously. You're not just letting the extra cash slip through your fingers. Luna: I can see how that would help with the emotional side of budgeting too. When you have a variable income, it's easy to feel like you're always behind or always catching up. Lucas: Absolutely. There's a lot of anxiety that comes with not knowing how much money is coming in next month. But when you're working from a baseline, you're no longer reacting to every peak and valley. You have a plan that you trust, and that's huge for your peace of mind. Luna: Let's talk about that psychological part a little more. How does this rule change someone's relationship with money? Lucas: Well, I've seen people go from avoiding their bank account because they're scared of what they'll see, to checking it regularly because they know they're on track. The baseline gives you a clear target. It's not just a number on a spreadsheet; it's a sense of control. Luna: And that control can lead to better decisions overall. When you're not stressed about money, you're less likely to make impulsive purchases or skip paying a bill. Lucas: Exactly. And here's a tip I like to give: if you're just starting out, don't try to be perfect. You might not have six months of income history, or you might have a really unusual month that skews the average. Start with what you have, and adjust as you go. The important thing is to get a baseline down on paper. Luna: So what if someone's income is really erratic, like one month they make six thousand and the next they make nothing? Would the sixty percent still work? Lucas: It can, but you might need to be even more conservative. Maybe you use fifty percent instead of sixty. The goal is to find a number that you can realistically cover your essentials with, even in a slow month. If your income swings wildly, you might need to build up a bigger buffer before you can fully commit to the baseline. Luna: That makes sense. It's not a one-size-fits-all rule, but it's a great starting point. Lucas: Right. And once you've got your baseline, you can use it to set up automatic transfers. For example, on the first of the month, you move your baseline amount into a separate checking account that you use for essentials. Anything left in your main account is your flexible money. Luna: Oh, that's a practical tip. It's like you're paying yourself a salary, even though your income is irregular. Lucas: Exactly. You're creating a structure that mimics a steady paycheck. And that makes budgeting so much easier, because you're not looking at a big lump sum and wondering how to divide it up. Luna: I bet this works for people with side hustles too, not just full-time freelancers. Like if you have a regular job but you also do freelance work on the weekends. Lucas: Absolutely. Your baseline could be based on just your regular salary, and then all that side hustle money is pure surplus. You can put it all toward savings or debt without changing your daily spending habits. It's a great way to accelerate your financial goals. Luna: That's a nice way to think about it. The side hustle becomes a bonus, not something you rely on to pay the bills. Lucas: Exactly. And that's the mindset shift we're going for. Instead of feeling like you're always chasing your income, you're setting a floor and letting the extra be a reward. Luna: You know, this reminds me of something that happened to me recently. I was talking to a friend who runs a small Etsy shop, and she was saying she never knows how much she'll make in a month. I wish I had this rule to share with her then. Lucas: Well, now you do. And if she's anything like the people in that workshop, this could be a real game-changer for her. Luna: Honestly, I think it could. And it's such a simple idea — it's almost surprising more people don't use it. Lucas: It is simple, but it takes a little discipline to set up. You have to look back at your income history, which some people find uncomfortable. But once you do it, you're making decisions based on data instead of anxiety. Luna: So if someone wants to try this, what's the first step? Should they pull up their bank statements right now? Lucas: That's exactly what I'd do. Open up your banking app, go back six months, and write down every deposit that's income — don't include transfers from savings or gifts. Add them all up, divide by six, and then multiply by 0.6. That's your number. Write it down. Luna: And then what? How do they know if it's the right number? Lucas: Well, take a look at your essentials. Are they less than that number? If yes, you're in good shape. If no, you have a choice: either find ways to cut your essentials, or if you can't, you might need to earn more or use a lower percentage, like fifty. But the idea is to get to a point where your baseline covers your essentials most months. Luna: And once you have that baseline, you can start building your savings buffer. Even if it's just a little at a time, it adds up. Lucas: Exactly. And here's the thing — even if you don't have a full month of buffer yet, you can still use the baseline. The worst case is you have a slow month and you have to dip into credit, but that's no different from what you'd do without a budget. The baseline just makes it more likely that you'll have a buffer in the first place. Luna: That's a good point. It's not perfect, but it's better than nothing. And it gives you a clear path forward. Lucas: And that's really what budgeting is about — not perfection, but direction. You're not trying to predict every dollar; you're trying to create a framework that helps you make better decisions over time. Luna: Well said. And I think this episode is a great example of why I love this show. We take a really common problem and give people a concrete, doable answer. Lucas: Glad you think so. And if you're listening and this tip actually helps you, maybe you'll consider supporting the show. We keep everything ad-free, and listener support is what makes that possible. If today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to say thanks if you've gotten value from our conversations. No pressure, but we appreciate it. Lucas: Okay, back to the numbers. One more thing I want to mention is that this method works best when you track your spending regularly. You can't just set the baseline and forget it. Luna: So how often should you check in? Weekly? Monthly? Lucas: I'd say once a week, just to see where you are. But the cool thing is, because your baseline is fixed, you don't have to rework your budget every month. You just compare your actual spending to your baseline, and if you're under, great. If you're over, you know you need to adjust something. Luna: That sounds a lot less stressful than the traditional monthly budget. Lucas: It is. And that's the whole point. Budgeting shouldn't be a punishment; it should be a tool that gives you freedom. The sixty percent baseline is one way to get that freedom, even when your income is unpredictable.