Budgeting When You Have Variable Income
I'm In Debt
- Posted:
10/16/2008
If you're like most self employed people, or people who live on commission, you may find it especially difficult to create and stick to a budget. When you don't get a regular paycheck weekly, bi-weekly or monthly that will be about the same amount each pay period - trying to figure out how to allocate your earnings can become a nightmare. What typically happens is you guess what you'll be earning for the month, and you either guess much too high and don't have enough to cover everything you need to pay for the month, or you guess too low and spend the excess.
Here are some budgeting tips for budgeting a variable income:
What You'll Need*checking account (preferably a free checking with ability to pay bills for free online)
*savings account (preferably one with online access and/or connected to your checking account for ease of transfer)
*method to track income and expenses (budgeting software, spreadsheet, simple notebook, etc)
What You'll DoIt's actually not possible to budget irregular income. One way around it is to use an extra account, like a savings account, to create a buffer and make it possible for you to budget your expenses and income using a consistent amount each week (or month, however you like to budget).
1. List everything you've got to pay. Living expenses, debts that you repay, any goals or entertainment funds you feel you need, and put them in order of importance. Your list would start with the absolute necessities, and end with anything that's just nice to have (but that you COULD live without if you had to). Here's an example of what your list may look like
- Food
- Rent/Mortgage
- Taxes
- Transportation Costs (car payment, gasoline, maintenance for vehicles, car insurance)
- Credit Card Payments
- Loan Payments
- Extra Debt Payment (if trying to "snowball" your debt away for example)
- Entertainment (restaurants and take out food, movies, etc)
- Vacation
Remember to include irregular expenses - the things you pay but maybe not due on a monthly basis. For example - if your property/school taxes are not included in escrow, you'll want to set aside enough each month to be able to pay them when they're due. (Take the total amount owed and divide by twelve if creating a monthly budget; divide by 52 if creating a weekly budget) This list of expenses are actually your budgeting categories.
2. Beside each of your budgeting categories, write in the weekly or monthly amount that you should allocate to a particular budget category (just be sure that if you decide to create a weekly budget you calculate all expenses on a weekly basis; or if you go with a monthly budget, all expenses are shown according to what is paid per month.)
3. When you receive income, deposit it into your checking account. Use the income to make payments that are due right now, starting at the top of you list and moving down as money allows. If something on the list isn't due for another two weeks, you may decide to wait a bit to pay it - at least when you are first starting out with this budgeting method. Put “left over” money after paying what's immediately due into your savings account.
4. The money in your savings account will begin to grow over time. When you have a period of low income, you can withdraw money from your savings account by transfering it to your checking account to help you make the required payments that are due.
This method will even out variable income - especially for people who have HIGH periods and LOW periods. The months that you make much more than you need to "get by", you add to your savings account after making it down your list of budgeting categories. Once you've established money in the savings account, you can literally set up your budget so that you take the same amount of money every week or month; because if you make less than required for the amount you need, you will have the additional money in the savings account to smooth it out until you hit the high period again (and replace the money used from the savings).
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