A lot of people have been asking me how to budget when you have a variable income. It's easier to budget when you know exactly how much money you make every month and it doesn't change. However what do you do when your income fluctuates?
I have never really ever had a job with a fixed salary. I've worked hourly, part-time, commission, and seasonal. As a result I've become very good about budgeting with a variable income. So believe me it is possible to have a working budget even though your income changes a lot.
There is a general principle that I work with and that is that some months I'm going to earn more than others and others I'm going to earn less. I therefore need different budgets to use as my circumstances change. I have 3 different budgets, A, B, and C. The A budget is for when I'm making my average income. The B budget is for when I'm making more money than usual. The C budget is for when I'm making less money than usual.
Fixed Expenses
Several things aren't going to change with any of your budgets, these are your fixed expenses. I've already talked about them here in my post on basic budgeting. Basically your rent isn't going to change every month no matter how much you're making. Make a list of all your fixed expenses and put it into each of your budgets.
For me these are my fixed expenses (numbers are made up).
| Category | Amount |
| Rent | 950.00 |
| Hydro | 50.00 |
| Internet | 50.00 |
| Phones | 100.00 |
| Car Loan | 350.00 |
| Insurance | 150.00 |
While I could change my internet and phone plan in case of an emergency, I'm not going to change them month-to-month, therefore they're a fixed expense for the purpose of this budget.
Income
Before you can fill out your variable expenses you need to know how much money you're making. But that's the problem with a variable income isn't it? Assume for budget A, the one with your average income that your average income is about 90% of what you generally make. Say one paycheque I make $5000, the next $4900, and the next $4800. I would say that $4900 is my average income, but I would only budget on 90% of that. That would be $4410, but to make things simple in my sample budget I say that $4500 is my average income. For my B budget which is where I make more than usual, I estimated I made 20% more than usual, so $5400. For my C budget which is where I make less than usual, I assumed I made 20% less than usual, so $3600. I like the idea of sticking with +/- 20% for my B and C budgets because I find them to be relatively accurate percentages from my experience. That's not to say that every month I make less than usual, I only make 20% less. I could only make 10% less or I could make 50% less. The same goes with the months I make more. This will be be explained further down.
I also find it helpful to use last month's income to calculate how much I have for this month. This way I know at the beginning of the month how much I have to spend and I don't go overboard. So if I made $5400 last month, I would use sample budget B this month.
Sample Budget
| Category | A | B | C |
| Rent | 900.00 | 950.00 | 950.00 |
| Hydro | 50.00 | 50.00 | 50.00 |
| Internet | 50.00 | 50.00 | 50.00 |
| Phones | 100.00 | 100.00 | 100.00 |
| Car Loan | 350.00 | 350.00 | 350.00 |
| Insurance | 150.00 | 150.00 | 150.00 |
| Groceries | 450.00 | 500.00 | 400.00 |
| Household Supplies | 200.00 | 250.00 | 150.00 |
| Gas | 160.00 | 170.00 | 140.00 |
| Car Maintenance | 50.00 | 130.00 | 50.00 |
| Vacation | 200.00 | 250.00 | 100.00 |
| Family/ Gifts | 100.00 | 150.00 | 90.00 |
| Discretionary Fund | 600.00 | 700.00 | 400.00 |
| Emergency Fund | 200.00 | 200.00 | 100.00 |
| Retirements Savings | 400.00 | 500.00 | 200.00 |
| House Savings | 250.00 | 550.00 | 200.00 |
| Medical | 150.00 | 150.00 | 100.00 |
| Cool Stuff | 140.00 | 200.00 | 20.00 |
| TOTAL | 4500.00 | 5400.00 | 3600.00 |
Variable Expenses
I've told you to fill in your variable expenses last because you can't fill them out until you know your monthly income. Then it's just a matter of making the numbers work. Add money into every category until your budget balances. You know what you usually spend in each category, so that's a good starting point. My best advice is just to play around with it until you get the budget balanced.
Curveball Account
You might have been wondering from earlier, what happens if you don't make the perfect 20% more or less than average each month? How do you stick to a budget then? The answer is that you keep surplus money in your account, where it becomes part of the curveball account. The curveball account covers you when you need to make up any deficit in your budget. So say I made $4650 last month, I would use sample budget A. But I would have $150 extra. Rather than spending that I would keep it in my account and let it accumulate. This way if the next month I only made $3450, I would use that $150 to make up the difference needed for sample budget C. By also saying that your average income is 90% of what it typically is, you'll allow yourself to build that curveball account monthly.
You might want to set an amount that you will let your curveball account reach. That way you always know you have that to use, but you can stop saving once it reaches that threshold. It's important to note that the curveball account is different from your emergency fund because you're using it for monthly expenses on a regular basis.
Two Income Household
The principles I have explained here can be applied to your situation regardless of how your household income works. If two of you contribute to the expenses and you both have variable income, you figure out your individual average income. Then you add them together and create your budgets. If one person in your household has a variable income and the other a fixed income, you use the fixed income as a fixed base. Then add the information for the variable income to that.
Good Luck!
To all of you out there with variable incomes, I hope this helps you make a budget that works for you. The advice I've given here is based on my own experiences and situation, but it might work for you too. If it doesn't, make you own budget. I like the A,B, and C budget approach, but you might have A-Z budgets. Find whatever works for you and stick to it. Trust me you'll feel a huge sense of relief when you don't have to worry about money every time something changes with your work schedule/ situation.
