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How to Budget If You Don’t Get a Steady Paycheck

Let me be honest – budgeting is a lot easier if you get a steady, consistent salary each month.  You know what’s coming so you can plan with it more easily.  For the rest of us, there is a bit of extra work to do.  That isn’t an excuse to avoid budgeting!  But without a crystal ball, how do you budget when you don’t have a steady salary?  Let’s talk about the three major scenarios:

  1. I work on straight commission (or I own a business and only get paid when there’s a profit).
  2. I work on partial commission (or I own a business and base my salary partially on the business profits).
  3. I’m paid hourly and I work where there is an ongoing cycle of overtime and layoffs.

Even though all three of those situations are extremely different, the approach to budgeting is much the same.  If you’re on a varied income, making sure you do this the right way will help you make the most of every penny that comes in.  Here are the steps.

  1. Look at your past income and do a little forecasting.  Gather your income information from the last 6-12 months and look for trends.  Consider what those trends can tell you about your income going forward.  If you think the answer is “nothing,” go back and look some more.  If you run a business you must forecast sales, inventory levels, headcounts, etc., etc.  Apply this same logic to your personal finances.  Use this historical income information to set a baseline salary you believe you can bring in each month, using the low end of the numbers you forecasted.  This won’t be perfect, but it is as good as you can do.  Even if you’re not very good at it to start, practice will help you improve.
  2. Build up a good emergency fund.  Despite your best efforts, there will likely be months where your income will fall short of your plans.  For that reason, you need something to fall back on.  During lean times, cut expenses to the bone and only touch your emergency fund if you truly can’t make it without it.  But having that there as a hedge to financial disaster is a huge help.
  3. Do a budget every month.  Every month is different, so don’t expect to do one budget and call it done.  Your budget isn’t on stone tablets – it should be on a piece or two of paper (or even better yet, a calendar).  This will force you to review the numbers every month, before the month begins, and make adjustments to make it work.
  4. Be diligent.  You can’t expect to do a good budget if you aren’t keeping good records. Even if you don’t think it is any fun, it is worth it to keep good records.  I promise you’ll thank me once you get through the painful chore of developing that habit.

Beyond those four steps, budgeting for inconsistent incomes is no different than for anyone else.  Don’t get hung up on the perceived difficulty, because really the only difference is in dealing with the income side of things.  So while your friends on salary may have it a bit easier, for you it really comes down to keeping good records and being realistic with your income expectations.

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