4 Secrets for Successfully Budgeting a Variable Income - Six Figures Under (2024)

I’ve heard all sorts of budgeting excuses. One of my favorites is,“I can’t budget because my income is variable.” This is just not true! You can and should budget, even if your income is always changing. In fact,you can budget well and have financial security even whenyour income fluctuates.

But, I get it. Not having a consistent, steady income can be incredibly stressful. When your income is variable a traditional budget can be challenging. How can you make plans for spending an unknown amount of money? Not knowing how much will be coming in makes planning ahead tricky.

If you’ve ever had variable income you’ve probably felt some anxiety and maybe even some discouragement. Budgeting variable income doesn’t have to be difficult. With the rightstrategies, you can have a successful budget even when your income is different every month.

1- Budget only the money that you actually have

Stop budgeting money that you’re expecting to earn. Don’t assign any fundsto your budget categories unless you already have that money in your hand or in the bank. In the beginning, you’ll do a little budgeting each time you get a paycheck (instead of just once a month).

Each time you get paid, decide what that money needs to do before you get paid again. Assign all of your dollars to categories and spend according to the balances in your categories (not the big lump sum in your checking account).

This isa huge (and intuitive) change from traditional budgeting. Dealing with real money will bring your budget to life and give you the security of knowing you aren’t spending based on money that might not materialize.

2- Prioritize your spending

We all know thatthat paying rent or buying groceries is more important than buying a new big screen TV or re-decorating theliving room. When resources are limited (and aren’t they always?), we have to decide what is the most important use of our funds.

Prioritization isnot a new concept, but putting that prioritization into practice can be tricky and requires self-discipline.

Ifone paycheck doesn’tcover all your expenses for a month, you’ll have to pick and choose what is most important and needs to bebudgeted for first, since you’re only budgeting money that you actually have.Organize your budget categories in order of importance or due date. That way, you can easily see where your money needs to go first. When you get your next paycheck, you can fund the rest of your budget.

When you start prioritizing your spending so you’re covering the most important, time-sensitive expensesfirst, you willbe able tostart setting aside funds for a rainy day.

3- Work to get a month ahead

Of course you’ll want to have an emergency fund, but in addition to your emergency fund, you’ll want to save so you can get a month ahead of your expenses. That way you can live on last month’s income instead of this month’s income (or worse, next month’s income).

Having a buffer of a month’s expenses puts distance between when income is earned and when it is spent. Having time between earning and spending your money gives you more time to prepare for dips in income without touching having to touch your emergency fund or resort to debt.

Even if you don’t have a complete month of expenses saved up, the buffer of money that you have built up can come in handy for the months where your income can’t quite meet even your prioritized expenses.

I am teaching a workshop called “Getting a Month Ahead” at the Get Organized HQ virtual event. You can sign up now for a free ticket so you can see my class along with 100+ other sessions about organizing all aspects of your life. I will go into all of the details so you can implement this life-changing budgeting strategy. You will love it!

4- Don’t rely on credit cards

The idea of credit cards (and any debt, for that matter) is buy now, pay later. Making a promise to pay something later when you aren’t sure you’ll have money later is setting yourself up for disaster. Don’t depend on credit cards to float your expenses. Credit cards are not a solution to irregular income.

What is considered “responsible” credit card use– where you use a credit card for convenience or rewards, but pay in full each month– is dangerous when you have variable or unstable income. If your paycheck is lower than you had hoped, you won’t be able to coverthe purchases you already made. Since there is no way to know what your paycheck will be, it’s hard to know how much you can safely spend.

If you like using credit cards, you can make them work really well for you, even with a variable income. In fact, usingcredit cards on a zero-based budget is the safest way to use credit cards that I know of (besides completely avoiding them, of course). The key is to subtract the amount you spend from your budget at the time you spend it so that you already have the money on hand, set aside for when the bill comes.

Our experience budgeting variable income

Several years ago after having a stable, steady income, we were thrust into a commission-based variable income when the law firm my husband was at decided to pay strictly commission instead of smoothing things out with a draw as they had done previously. At first, I worried and thought we might need to be more careful about how we’re paying down debt (we had been putting every extra cent toward debt for several years). I thought maybe we should set some income aside for when we had a low month.

It didn’t take me long to realize that we wouldn’t have to change anything about the way we were budgeting!We use a zero-based budget where we only spend money we actually have (thanks YNAB). We also only put expenses on our credit cards that we already have money for. Each expense that is put on a credit card is subtracted from the applicable budget category right when the spending happens. The best part is that living on last month’s incomegives us plenty of time to prepare for low-income months and act accordingly.

You can do this!

Don’t give up the idea of budgeting because your income is variable, inconsistent, or irregular. Budgeting is key for people whose income fluctuates! Instead of looking at variable income as an obstacle, start seeing it as an opportunity.

While some months will be lower than you’d like, other months will be higher than average. That can be exciting! Instead of dreading the low months, anticipate the high months. Changing your attitude and approach can make a world of difference.

When you budgetonlythe money you actually have by prioritizing your expenses, you can make the best use of the money you’ve got. Meanwhile, work to get a month ahead financially, so the ups and downs of income don’t affect you as much. You’ll be able to thrive on your variable income!

How about you?

  • How have you handled budgeting with a variable income?

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4 Secrets for Successfully Budgeting a Variable Income - Six Figures Under (2)

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4 Secrets for Successfully Budgeting a Variable Income - Six Figures Under (2024)

FAQs

4 Secrets for Successfully Budgeting a Variable Income - Six Figures Under? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

How do you successfully budget with a variable income? ›

How to Budget on an Irregular Income
  1. Figure out what your baseline monthly expenses are. ...
  2. Calculate the monthly average of your discretionary spending. ...
  3. Plan to save and build an emergency fund. ...
  4. Determine your average income. ...
  5. Save the excess. ...
  6. Try a zero-sum budget.

What are 4 steps to better budgeting? ›

The following steps can help you create a budget.
  • Calculate your earnings.
  • Pay your bills on time and track your expenses.
  • Set financial goals.
  • Review your progress.
Sep 19, 2023

What are 3 tips for successful budgeting? ›

  • Create your budget before the month begins. To stay on top of your budget, plan ahead. ...
  • Practice budgeting to zero. ...
  • Use the right tools. ...
  • Establish needs versus wants. ...
  • Keep bills and receipts organized. ...
  • Prioritize debt repayment. ...
  • Don't forget to factor in fun. ...
  • Save first, then spend.
Feb 22, 2024

What is the 50 30 20 rule of money? ›

The 50/30/20 budget rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must have or must do. The remaining half should be split between savings and debt repayment (20%) and everything else that you might want (30%).

What are the four walls? ›

Personal finance expert Dave Ramsey says if you're going through a tough financial period, you should budget for the “Four Walls” first above anything else. In a series of tweets, Ramsey suggested budgeting for food, utilities, shelter and transportation — in that specific order.

What are examples of variable income? ›

Examples of income of this type include income from hourly workers with fluctuating hours, or income that includes commissions, bonuses, or overtime.

What are the 4 C's of budgeting? ›

As owners of FP&A processes, today's accounting teams must be well-versed in the four C's of financial planning: context, collaboration, continuity, and communication. Today, financial planning and budgeting are more important than ever.

What are the four 4 main types of budgeting methods? ›

There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide.

What are the 3 most important parts of budgeting? ›

Answer and Explanation: Planning, controlling, and evaluating performance are the three primary goals of budgeting.

What is the #1 rule of budgeting? ›

The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Learn more about the 50/30/20 budget rule and if it's right for you.

What are the 2 most important things involved in successful budgeting? ›

The main characteristics of any budget are estimates of how much money you'll make and how much you'll spend over a certain period of time, typically a month.

What are the three 3 common budgeting mistakes to avoid? ›

10 of The Most Common Budgeting Mistakes to Avoid
  • Financial Goals Aren't Clear. ...
  • Not Tracking Expenses. ...
  • Overspending. ...
  • Not Planning For Unexpected Expenses. ...
  • Not Adjusting Budgets As Circumstances Change. ...
  • Thinking That Budgeting Is Easy. ...
  • Underestimating Expenses. ...
  • Relying Too Much On Credit.
Feb 28, 2024

How do you divide income into a budget? ›

Try the 50/30/20 rule as a simple budgeting framework. Allow up to 50% of your income for needs, including debt minimums. Leave 30% of your income for wants. Commit 20% of your income to savings and debt repayment beyond minimums.

How to do the envelope method? ›

You just take the exact amount of cash you've budgeted for each category and stick it in individual envelopes. Then throughout the month, you check your envelopes to see what's left to spend—because you'll see the literal amount in cash.

How do you divide your income? ›

The 50/30/20 rule is an easy budgeting method that can help you to manage your money effectively, simply and sustainably. The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants and 20% for savings or paying off debt.

How do you live on variable income? ›

7 Tips for Managing a Variable Income
  1. Track your expenses. knowing what you're doing with your money is often the first step to gaining control over it. ...
  2. Prioritize your spending. ...
  3. Build in a discretionary fund. ...
  4. Open up separate bank accounts. ...
  5. Set your personal salary. ...
  6. Store some money away. ...
  7. Pay your bills and expenses.

What is a good saving strategy to use if your income is uneven? ›

Put a little money into a buffer personal savings or business savings account during every high-earning month. That way, you'll have a safety net from which to draw if you happen to hit a month where you earn less than your baseline.

What is variable budgeting? ›

Variable expenses are costs that change over time, such as groceries or movie tickets. Because these costs might fluctuate over a week, month or year, it can be challenging to pinpoint what you'll spend.

How do you pay yourself a salary with an irregular income? ›

Pay Yourself a Salary

Pick a specific day each month and deposit a set amount from your business account into your personal checking account to cover your monthly expenses and discretionary spending. (You should pay for all personal and non-business-related expenses out of your personal checking account.)

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