How to Budget on a Variable Monthly Income

By Randall Orser | Budget

If you work as a freelancer or on commission only you probably have to manage a variable income which can be difficult for budgeting.  You cannot always predict how much money you will have coming in each month, so it is important to save a large portion of your money in a good month to balance out the bad ones.  

Here are some ways that you can budget your variable income:

1.  First of all list your monthly expenses which will allow you to see where your money goes each month.  After you have done this add 10% of your income for savings to your total.  If you are self-employed you may also want to have a separate savings account for taxes and other yearly expenses, and one for months where you do not make as much money. 

2.  You need to make necessities such as food, shelter, electricity and health insurance priorities then list debt payments, and savings.  The next category will be expenses for non-necessities such as clothing, fun money and eating out.  In months where you do not make as much money you can cut back your spending in this category.  

3.  Once you know how much money you will make in a specific month subtract your expenses and whatever is left goes to a separate savings account.  That is unless you have debt to pay off then you should use at least 50% of this extra money to pay this down. 

4.  In a slow month you can take money from the fund set up for slow months, but you should also cut back on unnecessary expenses so as to not completely drain your savings account completely.  You should not be taking money out to cover fun expenses.  The threat of having a short month should also be a motivator to work harder so that the shortage is not as severe.

Find Ways to Supplement Your Income

If you are self-employed or working on commission, it is always a good idea to have other income streams in place.  You can take on a second job or if you already have an employer consider starting a small home-based business.  This will help you to build a bigger reserve and eventually you may not need the second job.  Consider taking on seasonal work if your income drops during specific times of the year.

Other Tips

1.  It’s a good idea to build a reserve of at least two months-worth of expenses so that you have this money to fall back on if you have a few low earning months.

2.  You need to keep a tight budget for the first few years that you are self-employed especially if your work is seasonal or comes in cycles.  With most businesses it takes up to five years to show a consistent profit and if this is the case with you then you need to find another source of income to supplement your business.
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About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.