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Real Life On A Budget

How to Budget an Inconsistent Income

How exactly do you budget a variable income?

In other words, if you’re in sales and your income is based on commission, or if you’re in construction and your income is seasonal, how do you make sure your budget is prepared for those changes?

Here’s how you do it.

Make a list of everything you would put into a normal budget. You’ll include items like food, electricity, water, rent and so on. Include all of your monthly expenses and total it at the bottom.

Don’t forget about items like entertainment and “blow” money, even if it’s just a small amount. Now, ask yourself this: “If we had a horrible month and we only make enough money to do one thing, what would we do?” You put a “#1” next to that. Not sure what to pick? I’ll help you. Food!

After that, you pick your second priority. That should be utilities—your lights and water. Then it’s your rent or mortgage. Do you see what I’m talking about here? These are the basics—food, shelter, transportation, clothing. You take care of those things first.

At the first of the month, put those items in a list and go as far down the list as you can go. The list needs to be longer than the money. Every dollar needs to have a name.

It’s okay if you haven’t saved anything for a few months because income’s a problem right now. If you didn’t save anything because you went on a cruise, then that’s a problem. You’ve got your priorities wrong.

Take care of your necessities first, and then worry about all the “extras.”

That’s how you budget with a variable income.

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  • stef toepel

    Thank you! u2661

  • Kirk Munsch

    And a Hills and Valleys fund becomes a must-have to achieve peace in the monthly budgeting.

    • aaronsrib

      What does that mean?

      • Kirk Munsch

        When your irregular income is more than you need to meet expenses that is a hill. When it is less than needed that is a valley. Figure out what the worst case is in a year and take fom the hills and set aside money for the valleys. Make sense? n

        • aaronsrib

          Are you basing this off of an annual calculation?

          • Kirk Munsch

            I would yes. Look at a year and how many months do you estimate you will be in a valley and save at least enough to cover that number of valleys.

    • I own a small business and I use a hill-and-valley fund. I actually call it a “salary account” for myself, because no matter how good or bad my month is, I always pull out $2000/mo for my “salary”. If I make $5000 in one month, I will still only take out $2000. Same if I only make $1000 in a month. If the account gets too large, I will give myself a “bonus”.

  • Jeannie Romanello

    I LOVE THIS MINISTRY!

  • Christine Gutierrez

    thank you for this one!

  • disqus_GudjiSXvnY

    my income is different week to week, so i have a monthly budget that I look over and change every week. like I get paid every week and I have a little idea how much it will be getting nbut I change it every week to make sure i’m telling every dollar where to go.

  • Sam Cooke

    I think there should be variation in these budget amounts, rather than a fixed number. For example $500/mo on food might be “normal,” but $300 may have do in order to squeek through a finacial tight spot while keeping the lights on and mortgage current. A category like food is, after all, a variable expense. It would be nice if there was a tool that allowed for “normal/min/max” modes of life. 🙂

    • Cara Li

      This is my advice for everything…nn1. Try not to live paycheck to paycheck. Plan for life sucking at times.nn2. Try to have six months of budget saved up.nn3. If married, or have children, get life insurance.nn4. Try to enter into retirement debt free. You can save on things like gym (at Planet Fitness) and car insurance ($24/month at 4AutoInsuranceQuote). Try to cut back wherever.nn5. Look at your family medical history. Average out how long your ancestors lived. Add 5 years to that average. Is it 68? 75? 92?nn6. Now, plan to have what ever your budget is plus a 5% increase per year. If you have a 2k monthly budget now, that is 24k per year. Multiply that times an extra 5% per year. Finally, multiply that for how long you intend or think you will live. Me? My number is 144k (2kx12monthsx6years)(average family death=66 so I go to 71 (if I retire at 65).nnMy number will rise with inflation.nnNow, this notion that we all need to save (or invest in 401’s) 1 or 1.5 million dollars is what the BANKS want you to do.nn7. What do I do with the rest of the money? LIVE LIFE TO THE FULLEST EVERYDAY YOU ARE ALIVE!!!!!!

  • Holly Maddocks Lounder

    We struggle because medication for our family is a necessity and an overwhelming expense. ($2000 a month or sometimes more) being self employed with a disability income makes it hard to know if or when we shouldn’t prioritize money for medication. I am seriously considering living in a tent this summer just so we can pay for our meds, food, and business expenses.

    • Dave

      Get rid of your internet bill

      • Spook

        You can have a smart phone with s data plan that’s cheap like republic wireless and don’t need internet. Can’t assume people are just wasting money.

      • Mandy

        Some people might also need the Internet. The only reason we have it is because my husband needs it for work. He does a lot of work from home.

      • AmmHan

        This person is self employed. Chances are the internet is a work tool. I also struggle with finances, but I need a phone, internet and car to make a living. I use a land-line to save money on the phone.

    • Connie May

      If you haven’t already, talk to your Pharmacist about any discounts available from the manufacturer of your medications. I had one drug that was not covered under my insurance that they were able reduce the cost from $400. to $30. / month.

    • Stephanie

      That’s a huge amount for medication! I am sorry! You probably already know this, but Costco offers some of the cheapest rates on prescriptions and you don’t need to be a member to use their pharmacy. I needed anti nausea meds for my son, and at the hospital they were $300, at Costco? $19!! Just a thought! 🙂

  • Diane

    This, system is great. Also, I total up my individual basics…rent, utilities, insurance, phone , approx food and fuel based on what I need for them each month times the 12 mos off the year. Divide the totals by 52 (weeks in a year) and that gives you how much you need to sock away per week to make sure you’re taken care of when bills are due.

  • Christina Linneman

    We’re farmers, so, not only does our income vary greatly from “payday” to payday, but we only get paid once a year. Budgeting for this is an art and a science! We’ve messed it up plenty of times, but now, after 17 years, I think we’ve got it down. The emergency fund is key!

  • Dolly

    These discussions always miss the problem of just not having enough to go around. Also how to determine what budget you should be giving your food, entertainment etc. After all I understand that these are areas that have a lot of personal influence to them…But what is the criteria?

    • bryce

      Dolly, if you don’t have enough to go around, then you have to change that. It might be moving into a smaller place that is less expensive so it fits your budget. That means cloths aren’t in the budget and you make due with what you have. You don’t get to have an entertainment category if you don’t have enough money. You learn to live on oatmeal, beans and rice like Rachel’s dad Dave Ramsey teaches (it may not be what you want to eat, but it is expensive and life sustaining). You also go get a second job and get enough money. Listen to Dave’s radio show, or check his books out at the library.

    • Carolyn

      It really depends on how many people are in your family as far as food. Our food budget is 80 to 100 per week for 2 adults, a dog & cat. No real blow money right now. Ditched cable& got a cheaper cell phone. Hope to be debt free in 3 years. Also rarely eat out & pack my lunch for work. We keep our heat at 65 most of the time. Baby steps is the key.

      • Drew Steele

        We have a budget of 350 a month for a family of 6. Keep up the good wok!

    • mels p

      Dolly, when I make my budget I always fill in the absolute certain dollar amounts like car payments, mortgage, utilities, etc first. I skip the entertainment, groceries, and pocket money type categories until all the other things are filled up. Whatever is left over I use for the remaining categories. I make a menu for each week using what I have on hand and shop only for what I need to make the recipes. This way I can keep my grocery budget minimal as well. Any “extra” goes into entertainment or pocket money, vacation, etc. To me, these aren’t the priorities until our debts are completely gone. Hope that helps a little. Good luck!!

    • Laci

      I think that if your other bills can’t be paid you don’t have an entertainment category that pay period, also your food budget should fit what you have to work with for that period, if my house payment is gonna be $40 shy because of my grocery bill the obvious thing to do is cut back on those snacks or name brands you maybe buying that aren’t mandatory to get by that period.

  • Chris D

    The best thing I have found for budgeting a variable income (I am a shift worker who gets variable amounts of overtime) is YNAB or you need a budget. I am set up so that I use this months income for next months bills. It helps with the peaks and the valleys so to speak. Here is a link for 10% discount if you decide its for you after the free 34 day trial.nhttp://www.youneedabudget.com/?aic=CHGFTD2n

  • Dave

    You want to know the best way to double your money? Fold it up and put it back in your pocket ud83dude00

  • cole

    What about when you own a business? we own one log truck husband is driver. How do you budget really expensive break downs, parts etc monthly? I get the rainy day fund, we have one but at any time we have to be prepared to replace a motor 15k at the cheapest. How does one do the debt snowball while having to always save for parts huge fuel bill spikes, breakdowns etc. I’d love some input on how to budget for a business like ours. i know it can be done just struggling trying to.figure it out. income is.variable due to rate changes (weekly at mills) as well as pay checks come when loggers pay so no set pay day. Please help!!

    • Wanda

      My husband is a truck driver and owns his own truck and trailer. So we only have money coming if he has loads to haul during the week. I make my monthly budget and then set up goals for the week. This just makes it easier for him to know how much he needs to bring home each week. All money goes into a set account and then I have an automatic transfer into a separate account where the bills are paid out of. That weekly transfer is set by my budget. This way you take only what you need and the extra builds up in first account. When that amount gets to high, you decide on the amount, you transfer into a savings account or something that might draw better return. When we first started I watched every penny and where it went. We literally had paper and pen and marked down where every cent went. And you will be amazed at the extra that can be saved until you build up a cushion I hope this helps

    • susan

      That would fall under emergency fund. Some people have a high cost situation then the norm that they expect to happen. Treat it as a monthly bill. If you know what your bills are for the most part, add that as a monthly bill. If its tight on the budget, cut back a little on misc and add it to that bill. For example I know my med insurance has a 3000 deductible. I know I am going to reach that this year. I break it up into 12 and make that a monthly bill. Hope that helps.

    • Michael Elvrum

      You can look into extended warranty from a dealer in your area or update your truck to a more reliable vehicle to reduce down time.

  • candice

    I only get 500 a month for 3 people before bills.. yeah times are not just hard the are also kicking you while your down and then laughing in your face

    • Mary

      Candice, my sister is in the same boat. 3 people on $500 a month but somehow they make it work. The goal is to stay positive and if you can get a second job do. My sister can’t because of disabilities, just know you are not alone in your struggles

  • Cristina

    I like this idea but.my husband is a self employed contractor…sometimes he gets paid 3x in a month, sometimes he gets paid once a month. My biggest struggle is setting aside enough for us to live on until his next paycheck, but also getting bills paid on time….any suggestions?

  • Peter

    With tax season already going on, should I use the whole refund to pay off completelyany credit card debt I have?

    • Drew Steele

      If you can yes!

  • Richard

    I do something Similar to the jars depicted. I have a divider folder that I have each section labeled for each bill plus I have a section that I keep open to budget for upcoming holidays well as emergency saving and general savings for the future. I’ve been doing it for a month and a half and have started working over time. For the first time in my life, I have extra money to put away and I’m half a month ahead on my bills. I’m also about to purchase my first house and I’m getting close to paying off a credit card a student loan and an auto loan. I am in construction also so paychecks are very inconsistent

  • Drew Steele

    My wife and I keep our bills based on the highest bills we ever had. That way we know to have that amount. 3years ago the highest utility bill in March was $645. This last bill was $239. We had the $645 but the excess goes to our debt snowball.

  • weeceebee

    This claims food to be #1 priority. If rent/ mortgage is not paid first, you’ll be eatin’ that food on the street.

  • Thanks for posting this article. This is one of the most common question we receive when helping entrepreneurs become entirely self sufficient. Incomes usually vary from dollars to thousands from day to day. Something that we’ve gotten a lot of success with is similar to what you describe with a small addition. Once we have all the priorities and bills added up (like you mentioned), we assign each item a percentage of the total expense amount. So for example, Tithing – 10%, food – X%, Utilities – Y%, etc. So, if your bills are $5,000 monthly, on the days you make $400, you already have your percentage structured and know where each dollar goes according to percentage. This is specially useful for inconsistent incomes. Cheers, Diego Silva.

  • Nicole

    OK…question. We (my hubby and I)are going into week 4 of FPU. For week three, we need to do our first Budget. Now my question is. I am in retail. I work part-time and never have the same amount of hours from one week to the next. I get paid weekly. My husband works full-time 40hrs a week. Sometimes more some times less. He also gets paid weekly. nnSo which of Dave’s Budgets should be doing? The irregular income one or the allocated spending one. nn

    • Carla

      I use both! My income is salary so I know what’s coming in and base our cash flow budget at the set amount. Then we used the irregular income for his extra coming in on commission, its awesome!!!

  • Jessi

    Ok, I’ve been reading Dave Ramsey’s stuff and am ready to get going, but I get paid biweekly and I’m confused (overwhelmed?) trying to figure out how to know what is blow money in a two week period or what I need to save for the second half of the month. I’ve made my monthly budget but I get paid every 2 weeks, definitely variable amounts because I am a nurse and my hours vary, so I don’t know how much cash to take out of each paycheck. I usually get paid and immediately pay the bills due for that upcoming 2 week period….I just can’t grasp how to plan a whole months budget when I don’t know what a whole months pay will be. I hope this makes sense to someone!