How to budget on a variable income

Creating a budget when your income is the same every month can be a chore, but when your income isn’t the same it can be downright stressful. These tips on how to budget on a variable income are a great place to start.

We’ve had a lot of different income combinations in my house. Currently, my husband is salaried and receives the same paycheck each month. I work a part-time hourly job with slightly variable pay {based on how many hours I work, which changes weekly} and run One Mama’s Daily Drama {which is a wild roller coaster of revenue streams}.

Now I’m not a financial expert {and you should definitely talk to one if you need professional assistance}, but I’ve learned a few things over the years that have helped me create a budget that works well for my family.

5 tips for budgeting a variable income

1. Build a financial cushion.

Saving a full month’s expenses is ideal because then you can live on last month’s income. That makes budgeting “easier” because your budget is exactly what you already brought home.

When you’re living paycheck to paycheck, this can be tricky. Most people can’t save a month’s income all at once. In the past, we have saved all or part of a tax refund, deposited cash gifted at Christmas, and tried a no-spend month. All of these will give you a nice cushion so that you aren’t spending next month’s income before it arrives.

Even saving $50 or $100 from your income during a month can help you build up a savings cushion over a year. The more you can save during the higher-pay weeks, the bigger your cushion will be when a low-pay week comes up.

For example, if you brought home $3500 in January, then your budget is $3500 for February. If you only bring home $3000 in February, you’ll need to cut back on expenses because your budget for March is $3000. If you live on $3000 each month, then the extra $500 you brought home in January can be saved for a month when you only bring home $2500 or put towards something else {debt, vacation, etc.}.

2. Don’t count your income before it arrives.

When you’re counting on a check to come in the mail on a certain date, inevitably it will come a day late {or more!} Budget your spending based on what you have in the bank.

Many years ago, I was expecting a direct deposit to arrive and wrote a check for our rent that was due on the arrival date. For whatever reason, the deposit arrived the next day and my rent check bounced. I sheepishly lied to the landlord and told her that the check shouldn’t have bounced because the money was there. Don’t do that!

3. Know your fixed expenses.

No matter what kind of budget you’re working with, it’s important to know where your money is going. I use my printable yearly bill planner to keep track of regular things like utilities and loan payments.

For most accounts, you should be able to sign in and see how much you’ve spent in the past 12 months or so. You can also check bank statements or search your online bank account. There are exceptions, but it’s safe to assume that your electric bill in January of this year is close to what is was in January of last year.

Once you have those costs, you can plug them into your budget. These are the expenses you need to pay first.

In my 50/20/30 budget, I explained how to break down other expenses into categories. That post includes a lot of examples and a downloadable spreadsheet.

4. Designate a budget day.

Creating a budget takes time and you’ll need to work on it regularly for it to become a good habit.

Every Friday I sit down and balance our budget and pay all the bills that are due before the next Friday or so. {I often pay further ahead when the money is already in my bank account.}

I have a drawer in my desk where all receipts go. I check them against our bank account and plug them into my spreadsheet. Then I pay the bills and also plug in any income that’s been received.

5. Budget like a city.

I don’t know if all cities do this, but where I live, the city designates each income stream to fund each expense. This works really well if you have a variable income from several sources or “side hustles.”

For example, I currently budget my husband’s predictable paycheck for our essential expenses and use my irregular income to cover variable expenses and make extra payments on student loans. My blog income goes into savings and my husband’s side job {woodcarving} pays for taxes, travel, and medical expense {beyond what insurance and our HSA pay for}.

These five tips are really just the starting point. There is, of course, a lot about budgeting on a variable income that is really personal. If you have a question about this or any kind of budgeting, leave a comment or send me an email and I’ll do my best to help you out.