Budgeting with a varied income

[DWGal210]

Hi all - I have a budgeting question & know you all are a good place to ask.

For those of you who have a varied income (not the same amount each paycheck) how do you budget? I have a part salary / part commission job so my paycheck varies each week. I'm doing ok money-wise and not in trouble but I need to start a budget so I know where my money is going. I can pay my bills, go on vacation, etc but I just know I should have more in savings. I just need to be smarter & want to feel like I have a better handle on my finances.

Is there a form / formula / website you use? What's the best way to come up with a budget in this situation?

Thanks!

 

[RitaE]

Do a budget of all the absolute necessities .... housing/food/utilities/transportation/insurance ..... that hopefully will be covered by your minimum income. If not then you need to start a "Shortfall Savings" category in the next section.

Then sit down and make a list of priorities like Save Emergency Fund/Shortfall (with variable income, you really need a bigger cushion), Save Retirement, Save College, Car Replacement Fund, Vacation.

Put them in the order of importance to you.

Every month or whatever budgeting period you come up with, whenever the income goes past the minimum budget, then start putting it toward the priority list.

 

[ilovemk76]

Without knowing how much the salary is, this may or may not be the way to go.

I would budget all of my fixed and variable need expenses with the salary and then use a % of the commission for wants and savings.

 

[crisi]

My dad and sister both did commission sales, sister still does,

First, try and manage your necessities budget down to the salary portion of your check, if you can't, then you need to set aside some of the commission portion of the check as necessity.

Second, do have a larger than normal emergency fund...its possible you'll need to dip into yours during a bad quarter.

Third, resist the urge to treat any good quarter as a new normal..until you've sustained that level of income for at least five quarters, and likely more. Most sales are cyclical. My dad took forever to figure this out, so it was always feast to famine...feast in a good quarter and a lot of elbow macaroni in a bad one. It would have been much nicer if he'd had figured out how to stretch the good quarters over the bad ones.

 

[DWGal210]

Thanks everyone!

Crisi, you make a good point. There are definately larger check months than others.

Thanks again!

 

[ilovepete]

Can you get one month ahead on income and base your next month's budget on last months earnings and so on each month?

 

[StitchesGr8Fan]

Dave Ramsey recommends Rita's method for budgeting for irregular incomes. His website might have more info.

 

[Karenj2]

DH has a slightly irregular income (he's in sales, with a base salary & commission), and we use the YNAB software from www.youneedabudget.com. When you get the budget software (and follow the "rules" of the system), you'll end up living off of LAST month's salary, which means that you'll know exactly how much you have available to put towards your different categories.

Personally what I'd do is take a look at your income history, pick the month that you were paid the LEAST, then set your budget based off of that amount (if you can, or average out your last 6 months). If you budget your life off of your smallest paycheck, you'll quickly end up having a LOT more in savings!! (DH and I had been doing that, but have fallen off the wagon. )

 

[raftislander]

I am another YNAB user and love it. It is perfect for varied income. The program isn't very expensive and has great support in many forms. Online webinars, online tutorials and a forum with very helpful expierienced users. It also has a 34 day free trial so you can sample the program before you buy it.

 

[2disneyboys]

Dh has a varied weekly check whereas, I get paid a set amt every 2 weeks. In your case I would consider my dh's income the commission and my income the salary. What we do is we budget to pay all or most of the bills with my pay (salary) and use dh's pay to cover any shortfall, fund the emergency funds, and any extra. Dh does not actually make commission but I treat his income that way as there are weeks where his gross pay is 20-40% higher or lower that his average pay. I also pay as many bills for the year (rather than monthly) as I can (Insurance, school tuition, etc) and I use dh's extra on th good paydays to cover this fund. I take his average salary for a 3 month period, and break it down to a weekly average. anything he Brings home more than the weekly average goes to one of the savings accounts (car fund, annual pay out funds, standard emergency fund, or vacation fund). if needed, if he has several "low" weeks in a row, we can pull from the emergency fund if needed, but we try our best to not even have to do it. We tightened our belts for a few months and essentially pay the bills with last months income..so any paychecks recd in June are set aside for the July budget. The first of July , I know what we are able to do, as transfer the June monies to the various placesin the July budget. And then July monies gets set aside for aug budget, and so forth. It's been a rough road at times, but I feel like we are "getting there". My inlaws have the same variable income we do (dh and fil are in same field) and they very often play the feast to famine game. No offense, but that's not a game I like play so we are trying to work the system so we don't get caught in the cycle. Good luck!

 

[mommaminnie]

My husband is a base salary plus commission sales rep, and I set our budget based on his base salary alone. His base is sufficient to cover our basic living expenses, and all of his commissions go to savings and fund our extras like clothing, entertainment, vacations. We are very frugal with things like clothing and don't have a set monthly allowance for that, but just purchase when necessary. I am not comfortable ever counting on commissions to pay bills, even though as he loves to tell me, if he wasn't earning a steady amount, then he wouldn't keep his job, but it's just a quirk with me!

 

[DWGal210]

Great input everyone, thanks! Yes I can live on my salary with a little belt-tightening & use commission for savings, vacation, etc.

Thanks again! I'll also check out that budget site some mentioned.

 

[disneymagicgirl]

We do the same with DH's income. Budget and live off salary. All commissions and bonuses go straight to savings.

 

[Dismom55]

I don't know if this is helpful or applies, but I have two thoughts, first when my hubby was in the military we for the most part had two incomes, his active duty and mine, except when he got orders, then mine would go away until I became employed again at the next duty station, so we learned to live on his income alone and used mine to pay for trips back home to see family, savings and extras etc. So that is my first suggestion, if you are a two income family, learn to live on one income and bank, save the other. Then before my hubby went into the AF, he delivered a popular soft drink, his income at that time was a base pay and every other pay would include a commission. At that time we learned to live on the base pay alone and used the commission to pay for the extras and savings. Basically the same as others have said here. I think. I did not work at that time. I was always thankful for our frugal ways as when money got tight we had not been living out of our means and things were not as tight as we carried no credit cards or other excess debt. This was very much a relief when my husband died unexpectantly last year. I would be swimming in debt I fear, thankfully I can still plan a Disney trip every other year.

Good Luck on your Budget planning.