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How to Budget When Paychecks Fluctuate

how to budget

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.

Rethink Your Approach

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.

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 Tight

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.

You may want to 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 projected income, then sock away the extra. If you don’t need these funds to manage your budget in the lean months, you’ll soon have a sizable emergency fund. You can use these extra funds to pay off debt or toward financial goals like retirement savings or a down payment on a home. Instead of being a source of frustration, that irregular income could have you laughing all

the way to the bank, provided you adopt the discipline of basing your budget on the leanest months.

Look for the Bright Side

When you’re discouraged about your irregular income, consider whether you have other benefits that offset the unpredictable nature of your pay.  Often, unpredictable paychecks come with jobs that offer other perks. For example, choosing your own hours or working remotely. Other gigs, like sales positions, offer a potential commission check – if, of course, you meet your goals. So while the occasional meager check can be frustrating, remember the other perks you get that might make up some of the difference. 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? If that’s the case, it’s wise to get help. 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.

The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!


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