How to Budget on a Variable Income


In this post we’re talking about how you can create a budget, when you don’t have a fixed income. Learn about our tips and tricks below.

Whether you own a small business or are working on commission, you may be dealing with a variable income. While there are numerous advantages that come with being self-employed, one huge risk is the challenge of budgeting. It’s difficult to plan your expenses if you cannot predict how much money you will receive within a given period.

The reality is that there will be good months, and there will be bad ones. How you save during better days will enable you to stay afloat on a rainy day. With that, here are four tips on how you can wisely budget your variable income:

1. List down your expenses

budget variable income

Just as you would with a steady income, start by listing all your monthly bills. Prioritize your necessities, such as food, electricity, shelter, children’s education, and others alike. Also, include all debt payments, mortgages, and savings, and taxes.

In the last tier of your monthly expenses, list every extra item you spend on, from gym membership to shopping, dining out, and entertainment. Knowing where your money goes will help you identify where you could cut back when funds are low.

2. Make room for savings

saving money on a variable income

Ideally, you should save at least ten percent of your income and store it into an emergency fund. For self-employed individuals, it’s better if you can save more during your peak months to make up for the low season. Consider having two separate bank accounts: one for your working expenses and one strictly for savings.

While there is no strict rule for saving, it’s recommended to have at least two months’ worth of expenses stored in the bank. Once you have this much amount, you can ask your clients to deposit your paychecks directly into your savings account. You can then transfer money for your expenses into your checking account at the start of every month. In doing so, you will undoubtedly save more and it will make sure that you stay within your means.

3. Know how to survive slow months

For business people and freelancers, it’s inevitable to go through months when earnings are small. This is when your separate savings account will become useful. Use it to cover shortages so that you can avoid debts. As a general rule, never use your emergency fund to finance your “fun expenses.” Instead, scale back on these unnecessary items when you are going through a dry season.

4. Increase your means

monthly budget fluctuating income

When facing a financial challenge, there are two ways to deal with the problem: stay within your means, or find a way to increase your means. For freelancers or those working solely on commission, it helps to have multiple sources of income.

Consider having a second job or a side business that you can easily manage even from your home. Doing so will help you build up your emergency fund in a shorter amount of time.

Having a variable income may be a challenge, but with a solid financial plan, you will be able to thrive even when funds are tight. If you’re looking for financial wellness tips to help your family financial planning, get in touch with Chango to see how we can help you!



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