Budgeting tips for a variable income

[thesimplemoneyblog]

This doesn't really apply in my situation, but I have wondered how to build a budget when someone has any type of irregular or inconsistent income. I am curious how other people manage their budget around irregular incomes (commission, non-consistent hourly work, etc.) and what thoughts you all have for people trying to make a budget. I find that some people have trouble really making sense of it all if their income is inconsistent or their expenses are quite variable (yearly instead of monthly life insurance or other significant, periodic one-time expenses throughout the year). In some situations, it can make sense for someone to live off of their base income and to save their over-and-above, but in some cases, the base may be far too low to actually live off of if there is a large component to the variable part of their income.

Just wanted to see if anyone had some good ideas for what has worked for them or someone they know.

[sherylgray]

One of the most difficult queries. All I can suggest save depending upon your income. If income is high save more, if not save less. But try to save every month.

[Petunia 100]

I think the best way to handle it is:

1. Make a reasonable budget.
2. On the first of the month, withdraw the needed monthly amount from savings and deposit into checking.
3. Live all month off what is in checking.
4. Deposit all income into savings.
5. At the end of the month, any remaining money is transferred back to savings.
6. Next month, rinse and repeat.

[DayByDay]

I completely gave up on budgeting. It just doesn't work for me.

Just determining not to spend unnecessarily or being as cheap as possible when I do spend is what I focus on. I do log everything into a money program so I can pull up reports and see how I'm doing.

[MakeAStash]

Budgeting is like a diet: self-control is hugely important.

[greenskeeper]

budget on the low end of the income expected....live below your means and you'll never have money problems

[snafu]

The folk I know use a program like Quicken to set out 12 - 15 months of planned income and expenses. They have a basic, 'needs only' budget that goes to chequing, a specific monthly sum goes to a secondary/transferable account for quarterly, twice a year or annual expenses based on the previous year's numbers. Their personal allowance adjusts up when income is above a pre determined figure. The numbers with the most flex are the sum for *wants, & investment/ retirement program.

[Wino]

Budgeting with a variable budget is mostly about setting priorities.

First, list all the bills. Now, using that list, put them in order from "must pay" to "creditor is going to just have to wait."

Food, housing, utilities, gas, car payments... pretty much in that order. Way down the list will be "credit card payment," and even further down (like not even on the list) should be "eating out" and "Starbucks."

Pay the bills in the order listed. If you run out of money, stop. If you have money left over, save it, because next paycheck you may be out of money again. Once you have enough cushion in savings, you can start using some extra money to pay off the credit cards and other bills so you always end up covering everything out of the paychecks.

[FrugalTexan75]

The You Need a Budget methodology/program is custom made for those on a variable income. The basic premise is to figure out what is a customary month's expenses, and then save up that amount as a "buffer." Then whatever money you earn in November would be budgeted for December. In November, you would use your buffer amount to budget for expenses. By the end of November, you have all the money for your December budget. Rinse and repeat.

I don't have a variable budget, but when I did, I used this philosophy (and I still do now) and it worked great!

[esb3357]

This semi applies to us. My husband is in the military and we move often with little notice. My income is dependent on the area and whats available . Therefore my income goes right into savings. It is used for variable expense that we decide on once the money is earned. The money is never depended on nor anticipated for monthly expenses. This has allowed us to always be successful.

[thesimplemoneyblog]

Thanks everyone for your comments! After some further research and thought, I do think that a great system is to start by living off of the prior month's income (that is, after having saved some money out of that income) until you build up a good awareness of what your spending habits are and what a 'normal' income might be. Then, after some time, you can craft a 'normal' monthly budget around that target and sweep all excess into savings to build up that emergency fund to be larger than most (in the event your income is at a minimum for a period of time) and then work on funding other goals. The most important thing is disciplined savings and expense control to live below your means.

[TBH]

I basically do what Petunia recommends. My income varies A LOT and has for many years.

I have several ING savings accounts set up, each with different names.

1. All self-employed income goes into a savings account called "Holding Tank."
2. Once a month, I empty out the Holding Tank account, sending some to a separate savings account earmarked for taxes, some to retirement, and the rest goes into a savings account called Living Expenses.
3. All the income from my part time job (after taxes and retirement are taken out) goes directly into the Living Expenses account.
4. Once a month, I pay myself a fixed salary out of the Living Expenses account. It gets automatically transferred into my checking account. I know my taxes and my retirement are already accounted for, and I'm free to spend the salary once it hits the checking account.

I try to keep the Living Expenses account well stocked. If it starts to run low, and I have less than a month's worth of money in there, it's time to hustle and earn more money.

[thesimplemoneyblog]

Sounds like you have a good system going for you. Keep up the good work!

[gostumpy]

YNAB really is the best there is for someone living on a variable income... May not happen right away (OR maybe you have savings to do it), but create the budget for LAST MONTH's income!

You know how much you got paid last month.... use that to pay all of this month's bills! Then you can use this month to pay all of next month's bills... Live one month ahead is the single most important thing for a variable income household to do. That's the only way you'll *know* what your income is for the month you're budgeting.

Personal Budget Software - Finance Software for Windows & Mac

Consider it an investment in your peace of mind, imagine how much less stress you'd have not worrying about your variable income

No I don't work for YNAB, but I did pay for the program and I do use it, and I fugging love it.... if nothing else just for the peace of mind!

[kaleida]

I think the best way to handle it is:

1. Make a reasonable budget.
2. On the first of the month, withdraw the needed monthly amount from savings and deposit into checking.
3. Live all month off what is in checking.
4. Deposit all income into savings.
5. At the end of the month, any remaining money is transferred back to savings.
6. Next month, rinse and repeat.

That's what I did when I was a contractor. It worked really well for me. Works best if the savings account has at least a month's worth of expenses in it already.