One of the questions we get all the time is how to budget for a fluctuating income. Teachers, per diem workers, business owners, employees with hourly pay with bonuses, people paid with commissions or even just not paid on a set schedule say that it's impossible to budget. You're not alone, and we're here to help. We don't want you experiencing feast or famine with your budget. People tend to live thin then when they get a large paycheck go celebrate or live a little too loose. We don't want you to have the roller coaster ride that many commission-based people experience. We want you to plan your budget just like you are getting a steady paycheck. Steady paychecks are nice and boring, and when it comes to budgets, boring is good.
In this podcast, we discuss best practices we've learned about budgeting for a fluctuating income. Here are eight steps make your fluctuating income budget your best friend:
- Get your expenses dialed in. Get them super consistent and organized. Do this by writing them down in due date order. (See our handy How to Budget post for how best to organize this.) Also, really think about what is a need versus a want, and eliminate the wants if you feel they are adding to your stress.
- Get the actual amount of what your expenses are per month: bills, money for food, groceries, savings accounts, etc.
- Create a deposit account where all of your income will go. Whenever you get income, you deposit all the money right into that account. On the first of the month, you pay yourself a set amount out of that account into your checking account. That set amount you pay yourself equals your expenses.
- You can monitor that deposit account as often as you want so it should be obvious when you need to ramp up your commissions or make more income.
- If you get a lump sum payment infrequently (e.g., teachers getting paid once at the beginning of the school year), you can put that lump sum in the deposit account and give yourself a paycheck until the next lump sum comes in.
- Estimate low. If you're not sure what your next check is going to be, estimate low so you're not going to have issues with overextending yourself.
- Expect it later than what you're thinking. If you're not sure if your next check is coming in February or March, budget it for March and if it comes in February you'll be pleasantly surprised. If it comes in March, you will be prepared.
- Set a priority list of what expenses are really important or what is not necessary. Do you really need Netflix and HBO the next few months? Can you spend less on eating out or drinks over the next few weeks? If it comes in higher or sooner than you thought, you will know exactly where it is going and being very intentional and disciplined with your money.