Not everyone can count on  receiving the exact same amount of money each paycheck.  Many self-employed people, sales people who work on commission, waiters, and waitresses can’t predict how much they’re going to make from one month to the next.  Even though a fluctuating income makes budgeting difficult, it’s doable.

Making the Variable Income Budget

Total your monthly expenses just as you would if you made the same amount every month.  Add up housing, transportation, food, utilities, clothing, insurance, debt payments, and other things you need to live.

As for your income, average what you’ve made for the past year.  Use your recent bank statements or last year’s tax return to figure out how much you bring in.  When you’ve come up with an average income, use that the “income” part of your budget.

Add to Your Savings

Having a healthy savings account is the only thing that will make variable income budgeting work.  Think of your savings account as an insurance plan that will cover your expenses when your income isn’t enough.  Before this insurance plan can work for you, you have to build it up.

Any month you make more than your average income, put the extra money into your savings account. 

The months that you make less than your average income, use money from your savings to cover the bills.

Avoid overdipping into your savings for spending money, especially during the months that your income is less than average.  By “spending money”, I mean money to spend on unnecessary luxuries like a new tv or pair of shades.

Build a Fat Emergency Fund

When you live on a variable income, your emergency fund should be higher than if you had a more steady, reliable income.  Having six months to a year’s worth of living expenses will keep you afloat if anything happens to reduce your income.

It’s a good idea to keep your emergency fund separate from your “living expenses” savings account.  While your savings account is used to float you during the months when your income is less than average, your emergency fund should be used strictly for emergencies, like unexpected medical bills or car repairs.

Variable Income Budgeting Tips

If you have a job that has a base salary + commission, build your budget using your base salary.

If one spouse has a fixed income, build your budget using that spouse’s income.  The variable income can be used to build your emergency fund, pay off debt, or save for retirement.