How To Budget a Variable Income
Budgeting on a variable income can be difficult. If you are self-employed or you work on commission only you may be faced with managing a variable income. This means that it is difficult to predict how much money you will have coming in during a given month. It is important to save a large percentage of your income on good months to help make up for the bad ones. Here is one way to budget your variable income.
List Your Monthly Expenses
First, you need to list all of your expenses the same way that you would with a normal budget. This allows you to see where your money needs to go. After you have listed all the expenses, you need to add ten percent savings to your total. If you are self-employed you need to add in your taxes as an expense. If you have money above this budget amount in any given month it needs to go into savings. You may want to have separate savings account for taxes and one specifically for months where you do not make as much money.
Prioritize Your Expenses
You will need to prioritize your expenses. You need to take care of your basics first. This includes the necessities such as food, shelter, electricity, and health insurance. After that, you should list your debt payments and your savings. Then you can add in your clothing, gym memberships, and fun money. On the months where money is tight, you may need to cut back on the amount that you spend on things that are not necessities like your entertainment money or your expenses.
Cover Your Monthly Expenses and Save the Remaining Balance
Once you know how much money you will make that month, you sit down and subtract out your expenses until you have gone through all of your money. It is important to remember to save anything you make over the amount of your full budget. This should be in a savings account that is separate from your emergency fund and other savings goals.
If you are working on getting out of debt you may decide to put a percentage of up to fifty percent towards your debts with the extra money.
Cover Shortages With Your Savings
If you have a slow month, then you take the money out of the account that you have set up to cover slow months. These months you may want to scale back on unnecessary spending so that you do not drain your savings account completely. This will also give you more motivation to work harder so that you do not need to cut back. Generally, you should not be taking out money to cover all of your fun expenses.
Find Ways to Supplement Your Income
It helps to have multiple income streams in place if you are working solely on commission. This can be done with a second job or by setting up a business that you do on your own at home. This can help you build up a big enough reserve that you do not need to continue with the second job or you may choose to take on seasonal work if you notice that your income drops during specific times during the year.
Once you have saved enough to cover two months worth of expenses, you may want to have your paychecks direct deposited into that savings account. Then you simply transfer the amount of your budget into your checking account at the beginning of the month. This helps you to continue to meet your expenses and save. When budgeting a commission only income, this can be especially helpful. Be sure that you always have at least two months income in this account once you reach this point, so you can adjust your spending as needed in case you have a few slow months in a row.
It is important to make sure that you have a fairly tight budget the first few years that you are self-employed. You may not realize the first year or two that your work is seasonal or that it comes in cycles. It takes many businesses five years before they make a consistent profit. If you are coming up short every month, you may need to look for another source of income to supplement your business. You can create a solid financial plan to avoid an income crisis.