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Variable Income: How to Budget When Paychecks Fluctuate

Knowing how to budget is even more important for people whose paycheck varies.

Some of the best jobs offer variable income. People who are in sales may love the rush of closing a deal, but dislike the erratic nature of their weekly paycheck. Freelancers might enjoy working in their slippers, but loathe those lean weeks when they receive no work. Seasonal industries especially know the pains of an up-and-down market.

In these cases, the trick to living financially free is knowing how to budget with a variable income. The good news is it’s easier than you’d think.

Penny Wise and Pound Foolish

First, throw away everything you’ve learned about budgeting so far. Nix the “pay yourself first” and “automate all payments” advice. Conventional budgeting wisdom assumes that your income usually stays the same. In certain cases, it’s wise to grant a creditor access to auto-debit your account and to set aside the same amount for retirement each month. Your case, however, is different.

Open the Kimono

Start fresh. Write down a list of all your regular expenses. Be thorough. Use past bank statements and budget forms to be sure you’ve included everything. Next, rank those items in order of importance, assigning a number (#1 for the most crucial item like groceries or rent) to each one. Grab a new piece of paper (or spreadsheet) and rearrange all of your regular monthly expenses in order of importance. Then, do some research on your income from previous years. Find the lowest-paying month within the last year, and write that down as your monthly income.

Keep Your Budget as Tight as the Bark on a Tree

Every month, use your paycheck to cover the highest-ranking items on your list of expenses. Do not spend your whole paycheck on the list, however. Instead, only spend the amount you set as your “monthly income” on your budget sheet. If there’s any extra, don’t spend the surplus on the lower-ranking discretionary items. Instead, save the surplus, because you’ll need that cushion to stay afloat in future months when your paycheck is small.

Open a special savings account for this surplus, and keep it separate from other savings you may have. If you budget for the least amount of probable income, then sock away the extra, you’ll soon have a sizable emergency fund, your debt paid off, and a head start toward financial goals like retirement savings or a down payment on that dream home. Instead of being a source of frustration, that irregular income will have you laughing all the way to the bank.

There’s Gold in Them Thar Hills

When you’re discouraged about your irregular income, count your blessings. Usually, unpredictable paychecks come with jobs that offer other perks. For example, choosing your own hours or working remotely. In those cases, you only get paid when you work, and you only work when you want. Other gigs, like sales positions, offer a potentially huge commission check – if, of course, you close that huge sale. So while the occasional measly payday can be frustrating, remember the other perks you get that other standard jobs can’t offer. If those advantages aren’t worth the unpredictable income, consider changing jobs.

The Shortfalls

What if your irregular income doesn’t regularly cover the basics? What if instead of a surplus each week, you are coming up short and are not able to pay past debts or utility bills? Call a nonprofit credit counselor to discuss your options for these regular expenses. There is hope. Once you get the hang of how to budget with a variable income, you’ll be just as successful as the person whose job offers steady wages.

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