How to Budget When Income Is Variable
Budgeting is hard for may consumers, and an extra layer of difficulty is added when income is variable. For those who are self-employed or work on a commission-only basis, it is especially hard in the first few months of living in that manner. With proper planning and record keeping, budgeting on a variable income can be attained. The key is to remember that while your income is variable, your budget is not. Stick to the budget no matter how good the income is one month, because you might need the excess the next month.
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Instructions
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Itemize all of your monthly expenses. List each expense incurred over the past month. Be sure to include everything. Divide the expenses into categories like housing, entertainment, food and transportation. Add up each expense to create a total for each category.
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Review each category to see if there is any room for reduction, such as in cable television, Internet service or calling plans. Trim the budget to its most reasonable level for your lifestyle. Keep it to a realistic level; for example, do not cut food to a level so low that you will not be able to eat the whole month.
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Review your income for the past year. Take the yearly total and divide that by 12. Consider this your "monthly income." Compare that monthly income to your total budget. If it is a positive number, you are doing well. If it is a negative number or close to the same number, you either need to reduce your budget again or find a way to earn extra money at your job.
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Create two different checking accounts. Have your real monthly check, regardless of its size, go into one account. This is your easily accessible savings account. Have a second account created, from which you pay all of your bills each month. At the beginning of each month, deposit enough money from the first account into the second account to pay all of your bills. Consider this your salary, regardless of your actual paycheck. This creates a habit of sticking to a realistic budget, ignoring the variances in your income. Do not spend the money in the first checking account, if at all possible.
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Tips & Warnings
Set a goal of having three to six months worth of funds in your first checking account to cover any dry months of variable income. The more money you can save, the better off you will be in the event that you have a dry spell at work. Additionally, do not overspend in your good months. Create a minimum balance in the first checking account and do not allow the balance to go below that when purchasing unbudgeted items.
If you have a few months of low income in the beginning of your new job and no savings account, you can easily fall into a financial hole that you have trouble getting out of easily. Do not take a variable income position, if at all possible, without a savings account already in place.
References
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