Many people who work “commission only” jobs or that are self-employed have what is considered a variable or irregular income. This is because their paycheck is determined by how many products they sell or how many customers they bring in the door. If this is you then you have come to the right place to figure out how you can make a budget.
When my wife and I had $52,000 in debt outside of our mortgage, I had a 100% commission job. So what I am about to tell you helped us to budget on an irregular income and we were able to pay our debt off in 18 months.
1. Create a Financial Game-Plan on Paper (aka a budget)
This step may seem obvious, but some people say “yeah, I track my spending…in my head.” I promise you that is not as effective as sitting down and writing out your game plan on paper. This will help you know exactly how much you are spending each month as well as prioritize what gets paid first. The biggest challenge of having a variable income is that you don’t how much money you will make each month.
If you prefer to have a form that automatically calculates everything for you, go here to find an excel spreadsheet that you can download: Financial Game-Plan.
2. Prioritize Your Expenses
You may have a month where there is not enough money coming in to pay your bills, so you need to prioritize what you can pay. I would start with groceries, housing & then transportation. You need to have food, it would be nice to have a roof over your head, and it might be important to have a car to get to the office in the morning.
3. Base Your Budget on Your Lowest Month of Income
Let’s say that your lowest month of income was $1,500. Use that as a benchmark. Make a plan for the first $1,500 based on the priorities you determined above. Then with any money after that, add things like entertainment, debt reduction, savings.
4. Stock Away Cash from a Good Month
I know from first-hand experience that some months can be better than others. I would make sure that you stock some money away for when those bad months come. I know what it is like to have a really good month and to want to go out to an expensive restaurant or go buy some gadgets that I have been itching to get. These things are OK in moderation, so set aside a small amount to do those things as well while making sure you have enough money set aside to take care of the “not-so-good” months.
If you do these steps, you will have a budget in place, a prioritized spending plan, a benchmark to base your budget on, and some cash in the bank for when you have a dry month.
Do you have a variable income? What have you done that might be helpful to others?