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Variable Income: How to Manage Money When you Don’t Earn a Steady Paycheck

We all like to wake up in the morning knowing there’s enough money for breakfast and this month’s electric bill — not to mention those whopping student loans. For meeting these everyday financial obligations, nothing beats a regular paycheck.

But what if you don’t have one? Maybe you’re working odd jobs while searching for a position in your field. Perhaps you’re a freelancer or entrepreneur. Maybe your pay is based on roller-coaster commissions. There are plenty of reasons for an irregular income. But if you have one, you just need to be able to pay the bills today, tomorrow, the next day, and the next…

So how do you find some kind of predictability? You create the consistency that comes from a steady paycheck on your own. Never fear, because financial freedom is still within reach! Here’s more good news: There’s no budget needed.

Get a big-picture view

While it’s common to have an irregular income, irregular expenses are even more common. Your first step is to take stock of both. In a given month, how much do you usually expect to receive? How much do you expect to spend?

Maybe every month is different, or there are only a few that are unusual. It’s probably not too hard for you to get an idea of just how variable everything is before we zero in. First we’ll talk about income, then expenses.

Create a regular paycheck for yourself

Your goal is to beat the system by having money ready to pay your bills when they come. Here’s how to win at this game by creating your own steady paycheck:

  1. Open a savings account for your earnings. Always deposit any pay you receive in this account. We’ll call it your Earn account.
  2. Pay yourself every two weeks or monthly. Simply transfer a set amount (your “paycheck”) from the Earn account to your checking account (a.k.a., your Spend account). The amount of your paycheck should be a bit more than enough cover your expenses.
  3. Keep extra money — a cash cushion — in your Earn account. This cushion helps prevent disaster in case something happens. If there’s a delay in receiving a payment, commission or other expected income, you don’t want to miss your paycheck because a person or company owes you money.

At first, you might have to sacrifice for awhile to build up your Earn account. You’ll need enough to pay yourself each time and have some left over for your cash cushion. Avoid setting up automatic payments out of your checking account until you’re paying yourself consistently and there’s a good-sized cushion in your Earn account. Overdraft fees just add more to your bills!

A common trap people with irregular income fall into is using credit cards to float themselves between checks. Obviously I don’t recommend this. Why pay interest and accumulate additional debt? Don’t tempt yourself to splurge and end up not paying it off. If you’ve done this in the past, stay away from credit cards altogether while you get this system in place. With the method I describe here, you can reduce any debt little by little as you go.

Here’s one more tip: Don’t forget the saving as an “expense”. When it’s an expense item, saving becomes automatic. Your top saving priority for financial freedom should be an emergency fund so you’re ready for the unexpected.

Make your expenses predictable, too

Not all bills come on a monthly basis for the same amount, and not all expenses are packaged like a bill. If you’re not ready, you’ll be caught by surprise by things like auto insurance, your driver’s license renewal fee, car maintenance expenses, and the gifts your family and friends are counting on for birthdays and holidays.

Here’s how to even out your expenses so you’re prepared for those that come periodically:

  1. Open another savings account for money that covers irregular expenses. We’ll call it your Reserve account.
  2. Total all the irregular expenses you have in a given year and divide by 12. This gives you a predictable amount to save each month by spreading the total evenly over a 12-month period.
  3. Make the same monthly deposit into your Reserve account each month. For example, your monthly auto insurance bill is $55, which makes the yearly total $660. If you pay it all at once, the insurance company only charges $600. Therefore, you deposit $50 into your Reserve account each month.
  4. Pay your irregular expenses by transferring money from your Reserve account. In our previous example, when the $600 bill arrives, you pay it in full instead of the $55 installments. You’ve saved $60 for the year and earned some interest too!
Here’s what it all looks like:

Budgeting for unsteady income: Put money you earn into a reserve account, then transfer money as you need it into a spending account.

Enjoy your peace of mind

Making your income and expenses predictable and consistent takes effort and time, but it’s worth the peace of mind. It’s also worth escaping all the fees from bounced checks, credit card interest, late payments, and poor credit. A little discipline will go a long way!

Michael Goldman, M.A., CFP®, is an expert in financial coaching and behavioral economics. He specializes in helping people identify and reach meaningful life goals by making smart financial decisions. He is also founder of Wealth Gathering, the online social community that works as a personal trainer for financial fitness.

Published or updated on December 3, 2012

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  1. Great topic. I live on a commission based income, and it varies a lot. I always base my monthly budget based on the average monthly income of the lowest of the last two years. This helps me be a little more conservative. Also, I keep a 8 month emergency fund so that I could get by without a penny of income for 8 months (thankfully that never happens).

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