how do you budget with variable income

Budgeting when you have a variable income.

• 1. Create your baseline budget. You can also call this your bare minimum budget. The total amount of these expenses is the minimum amount of money ...
• 2. Prioritize your expenses based on your variable income.
• 3. Plan for future months during the months you earn more.

Full Answer

Is it hard to budget on a variable income?

Budgeting on a variable income can be difficult. If you are self-employed or you work on commission only, you may be faced with managing a variable income. This means that it can be difficult to predict how much money you will have coming in during a given month.

How do you set up a budget for an irregular income?

Start with your lowest monthly income estimate. If you’ve got an irregular income, you should set up your budget based on your lowest monthly estimate. It’s easier to start low than to start with an average. Why? Because if you budget for the smallest amount, you can always go up from there!

How do I add a check to my budget?

Click Add Paycheck in the Income budget category. Label the check as Paycheck 1, Paycheck 2 or your employer’s name—whatever works best for you. Remember, you’re putting in that lowest monthly income. You’ll see what to do if your income is different from the plan in a moment.

How do I budget for the smallest amount of income?

Because if you budget for the smallest amount, you can always go up from there! To find this number, check out your pay stubs from the last year and find the lowest one in the bunch. If this is your first time working on commission or living on an irregular income, estimate what your lowest month will look like.

How do you budget without a fixed income?

How to Create a Budget When Your Income FluctuatesDefine your essential monthly expenses. ... Track your spending meticulously. ... Estimate your lowest monthly income. ... Identify non-essential expenses. ... Consider building an emergency fund. ... Keep your budget accessible. ... Don't get discouraged — keep budgeting! ... Keep your cash safe.

Can you budget for variable costs?

Tally your variable expenses Ideally, you'll have money left over rather than a zero or negative balance. Separate your variable expenses from your fixed expenses to estimate how much you spend on the former. Then you can decide if that amount aligns with your budget.

How do people live on irregular income?

5 Ways to Live on Irregular IncomeKeep overhead low. For starters, you need to get a handle on your monthly necessities. ... Stash extra cash when you can. Depending on the industry, you may feel subject to periods of feast or famine. ... Stay on top of invoices. ... Create the financial safeguards you need. ... Plan for tax time.

What are examples of variable income?

Variable income is an amount of money a person receives that changes over time, or changes according to the situation. Commissions and interest on investments or savings are examples of variable income. Occasional income is when someone receives money from time to time.

What are two examples of variable costs?

Examples of variable costs are raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees. In some accounting statements, the Variable costs of production are called the “Cost of Goods Sold.”

What are fixed and variable budgets?

Fixed budget is a plan for a single level of sales (or other measure of activity), while a variable budget consists of several plans, one for each of several levels of sales (or other measure of activity).

What is an example of irregular income?

Examples of irregular income include: Self-employment income. Commissions based income. Quarterly or annual bonuses.

What is the best way to plan for known but irregular expenses?

Fortunately, taking the surprise out of irregular expenses is fairly simple. You just have to identify your irregular expenses, total their cost, and divide that total by 12 to turn them into a single monthly bill that you can include in your budget.

How do you budget for two incomes?

It comes down to six basic steps.List all of your combined income sources and amounts.List out all of your joint household expenses.Estimate how much you will spend on each item.Track expenses.Schedule a standing budget meeting.Create your budget with your spouse before you get paid.Budget as often as you get paid.More items...•

Can I getting a mortgage with variable income?

A variable income may make lenders warier of your ability to pay back your loan, so you need to be better prepared on other fronts. Try to improve your credit score and get it as high as 700, although you may be able to get an FHA loan with a credit score of 640.

What does it mean to have a variable income?

Variable income" means earned or unearned income that is not always received in the same amount each month.

What are variable income instruments?

Variable income is a type of investment where the remuneration is not known at the time of application. The most common example of variable income investments are stocks, or shares.

What are fixed expenses in a budget?

Examples of fixed expenses include:Rent or mortgage payments.Car payments.Other loan payments.Insurance premiums.Property taxes.Phone and utility bills.Child care costs.Tuition fees.More items...•

What is budget variance?

A variance is the difference between actual and budgeted income and expenditure.

How can you reduce variable expenses in your regular routine ZOGO?

For example, consider renting a less expensive apartment to reduce your rent expenses! Variable expenses are, by definition, easier to reduce. If you're in a tight spot financially, you can't keep spending all your money on new clothes, so buckle up, make a spending plan (budgeting), and get through the tight spot!

Is clothing a variable expense?

What Are Variable Costs? Variable costs are unfixed, discretionary costs that include gas, clothing, entertainment, pet supplies and dining out at restaurants.

How to create a budget for a new job?

1. Understand your income. The first step in creating your budget is to determine your average monthly income. To do this, you need to be tracking your income and expenses on a monthly basis. If you are paid on a W-2 paycheck, you should be able to get this information from your pay stub or payroll department.

How much of your budget should be dedicated to saving?

Your expenses should not be the only items in your budget: savings should be treated just like any other bill. Ideally, at least 20% of your budget should be dedicated to saving money.

How much money do you make in month 2?

You earn $6,000 in Month 2, and have the same $4,000 in expenses. That leaves you with an even greater buffer of $3,000 for the next month. In Month 3, you only earn $2,000, which means you can rely on your buffer to help cover that month's bills and still have $1,000 left in the bank.

How to pay yourself on a regular schedule?

You'll then "pay" yourself on a regular schedule by transferring money from your reserve fund to your checking account. You can pay yourself monthly, bi-weekly, weekly — whatever works for you.

How much should non-essential expenses make up?

According to the 50/20/30 rule, non-essential expenses should make up no more than 30% of your after-tax income. If your average monthly discretionary spending exceeds 30% ...

How much of your income should go to essential expenses?

According to the 50/20/30 budgeting rule, 1 no more than 50% of your after-tax income should go toward essential expenses. Since your income fluctuates, aim for a 50% average after-tax income. Also keep in mind that your essentials represent the leanest budget you can live on, even if that means temporarily cutting other recurring ...

Where to keep reserve funds?

A good place to keep your reserve fund is a money market account, which is a type of savings account that also offers debit and check-writing capabilities, as well as potentially higher interest rates on higher balances. Consider opening one up with the same bank where you have your checking account.

What is the most important thing when it comes to making a budget with variable income?

The most important thing when it comes to making a budget with variable income, however, is prioritizing your costs.

What happens when you have a variable income?

When you have a variable income, the majority of your income will be going to your most essential expenses.

What is the first half of budgeting?

Knowing how much you have to pay for your major expenses and other essentials is the first half of creating any budget.

What is the common thing for people living on variable income?

If there’s one thing that seems to be common for those living on a variable income, it is that the present often demands the most of your time and resources.

How much money do you need to have for emergency funds?

Generally, the advice regarding emergency funds is to have at least 3 to 6 month’s worth of expenses tucked away for a rainy day.

Why is it important to have a budget?

Using a budget to plan your spending is the best way to not only achieve financial freedom, but it’s also improve your financial situation.

Is it better to take initiative or look for ways to support your income?

Instead, taking initiative and looking for ways to support your income now and in the future will be very beneficial to your finances.

What is the difference between discretionary and necessary expenses?

Once you’ve laid them all out, separate necessary and discretionary expenses. Necessary means essential to surviving now or in the future. Discretionary expenses are any additional expenses that enrich your life but aren’t necessary for survival.

Why is it important to save during high earning months?

Because your expenses likely won’t change month to month like your income, it’s important to save during your high-earning months, so that you can pull from those savings in the sparse months — kind of like an income sinking fund.

Start With What You Know

You might not have a steady income, but you can start by creating the expense portion of your budget. Getting these numbers down can give you a baseline to build from and help you avoid unexpected setbacks that might knock other people off course.

Create a Spending Plan That Doesn't Rely on Your Income

You can try different budgeting systems to see which one works best. But one trick when you have a variable income is to budget using a fixed amount as your income.

Build Your Safety Net

It can take time to build up the funds you need to weather ups and downs. You may want to jumpstart the process with a spending fast and set aside the savings. Or look for ways to regularly save money to decrease your baseline expenses.

Stay Flexible and Reevaluate Your Goals

Budgets don't have to be rigid all-or-nothing systems, and they will inevitably and naturally shift over time. Partially because your income and expenses may change. But also because you'll achieve and set different goals.

How Do You Actually Succeed with Budgeting, with a Varying Income?

When you are budgeting and entering in your projected income, write it down that it is:

When you have one aspect of your finances that varies greatly (such as your income) if your income varies?

When you have one aspect of your finances that varies greatly (such as your income) if your income varies from paycheck to paycheck or month to month, then you will want to really dial in on your expenses. Instead of having 2 really volatile situations, you can make it so it is just your income is fluctuating and that your expenses are much more consistent.

What can the variable income fund do?

The money in the Variable Income Fund can help replenish other categories on slow months.

Why is variable income important?

A Variable Income Makes Budgeting even MORE Critical. Those people that have it “easy”, that are paid the same exact amount every single month, they’d do well budgeting and following the YNAB Way. But you, with your variable income, you absolutely need a budget.

What is YNAB for variable income?

YNAB is the right weapon for the variable income fight. Its simple interface allows you to manage your Variable Income Fund with a few clicks. You won’t find anything simpler, or more effective.

What happens if your income is crazy?

In other words, if your income is crazy, your budgeting will have a crazy (good) impact on your state of mind. You have a bigger dragon to slay, and you’ll find it very rewarding.

What is baseline expenses?

Your baseline expenses are what you would need to live however you live right now, with no changes. Though bear in mind when working out your baseline, that you absolutely MUST remember your True Expenses (your Rainy Day funding requirements from Rule Two).

What is the basic money equation?

The basic money equation is monthly income minus expenses, right? And you build a plan around that. Well, how in the heck are you supposed to plan if the income stream half of the equation can be anywhere from $1,000 to $10,000 in any given month?

Is income variable enough to change your budget?

If your income is only slightly variable, this change alone is enough to alter your whole budget paradigm. You don’t deal with forecasting (and being wrong), you only deal with your known number—what you earned last month. It’s already in your bank account.

How To Budget A Variable Income: 3 Simple Steps

When I first started working for myself, it was hard determining what my take-home pay was. So I would use the income I made from the previous month as a way to determine what my budget was for the next month.

Summary

Now that you know how to budget a variable income, I hope you take the time to make a budget for yourself. If you have an irregular income, it is even more important for you to have a budget. Just because your income is unpredictable doesn’t mean your budget needs to be unpredictable too!

How much does an envelope budget get?

If you spend $300 on groceries each month, your grocery envelope gets $300; if you dine out to the tune of $150 each month, your dining envelope gets $150. When the funds in an envelope run out, you’re done spending in that category until the following month.

How to calculate discretionary spending?

Calculate your discretionary spending for each month in the period you’re reviewing, add each month’s discretionary spending, and then divide that total by the number of months in the period. The result is your average monthly discretionary income. If your average monthly income – which you’ll calculate in the next step – reveals that you’re spending too much each month, you’ll look to trim discretionary spending first before taking more drastic measures.

What happens if you have irregular income?

After a good month, you’ll have more than enough to meet your baseline and budgeted discretionary spending. After an average month, you may have little to nothing left over. After a really bad month, you may need to trim your discretionary budget to make ends meet.

What should my salary be?

Your salary should be the bare minimum necessary to cover your monthly discretionary and non-discretionary expenses. If you consistently earn much more than you spend, or your spending varies little from month to month, you may feel comfortable paying yourself a salary equal to your average monthly expenditure. Otherwise, set your salary at the lowest monthly spend in your review period and adjust your discretionary budget accordingly.

What is included in utilities?

Utilities. This category includes bills for electricity, water service, heat, and telecommunications, such as cell phone and home Internet plans.

Is it easier to stick to an irregular income budget?

Sticking to your irregular-income budget is much easier when you also stick to a basic principle of personal finance: always save the excess.

Do you include expenses in your budget when you merge?

If you’ve merged finances with a partner or spouse, include that person’s expenses in your budget calculations as well. You’ll also include their income, irregular or not, in your income calculations.

How to budget for irregular income?

The key to winning with budgeting on an irregular income is being flexible and staying on top of it. Adjust as you get paid. If your income ends up being higher than you planned, make sure you add it to your budget. So, if you set your monthly income to $4,500 but actually made $5,000, go back and add that extra $500 in as income. Just adjust your planned income to what you actually made! And do a happy dance. Because the extra income means you can throw more money at your current Baby Step.

What to do if your income is higher than planned?

If your income ends up being higher than you planned, make sure you add it to your budget. So, if you set your monthly income to $4,500 but actually made $5,000, go back and add that extra $500 in as income. Just adjust your planned income to what you actually made! And do a happy dance.

How to add categories to Everydollar?

(You can even add emojis!) To add a category, go to the desktop version of your budget and follow these steps: Scroll to the bottom of your budget. Click Add Group.

What are the four walls of a budget?

Next, list out your expenses. Start with the essentials (what we call the Four Walls): food, utilities, shelter and transportation. Be sure to also add giving and insurance, plus any debt payments or savings goals you have. After that, you can budget for the nonessentials like TV streaming services, restaurants, adult kickball league fees, subscription boxes and personal spending.

How long does it take to get comfortable with budgeting?

So, if you want to win with money—you’ll have to work at it. It usually takes around three months to get comfortable with budgeting, no matter your income. So keep going.

Does budgeting help with money?

Believe it or not, budgeting will help you take control of your money and eliminate money worries. Here are my best budgeting tips.

Can you skip steps 1 and 2 on Everydollar Plus?

If you have EveryDollar Plus, you can skip steps one and two. Your bank is synced, so your transactions all stream in on their own!