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 when your 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 right strategies, 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 funds to 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 is a 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 that that paying rent or buying groceries is more important than buying a new big screen TV or re-decorating the living room. When resources are limited (and aren’t they always?), we have to decide what is the most important use of our funds.
Prioritization is not a new concept, but putting that prioritization into practice can be tricky and requires self-discipline.
If one paycheck doesn’t cover all your expenses for a month, you’ll have to pick and choose what is most important and needs to be budgeted 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 expenses first, you will be able to start 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 cover the 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, using credit 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 income gives 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 budget only the 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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Very good advice! Thank you, as this is just what I was looking for.
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I am grateful that so far, we have not had to budget on a variable income, but I think your points are also good for budgeting variable extra income, if that makes sense. For example, I shouldn’t spend our extra paychecks or tax return income until we actually have it to spend, or any side income.