Tricks for Budgeting Your Variable Income

by Reader Contributors

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How do you budget your money when you are not sure how much money you have to work with each month? Try these variable income budgeting tricks that work for our savvy frugal readers.

Dear Dollar Stretcher,
When I was single, I used to have a budget. I knew how much money I was getting every month, so doing a budget was no problem.

I am now a stay-at-home mom who tries to make a few dollars here and there by doing odd jobs. My husband works by contract, so I never know from month to month, even from day to day, how much money he will make. Some months, we could have over $5,200 to work with, and others, just $2,400.

My question is, how do you budget your money when you are unsure how much money you have to work with? Can you or your readers offer up and variable income budgeting tricks?

Tricks for Budgeting Your Variable Income

First, I’ll point you to a few helpful articles here on our site that address this issue:

I also reached out to our readers, who had a lot of great advice to offer on what has and has not worked for them when budgeting a variable income, as well as tips for cutting back so you can more easily survive those low-income months. See if any of these tricks can help you find a workable budgeting method for your fluctuating income.

Save Extra in Good Months

Any month you have extra money after paying the bills, put it away for next month (just in case you don’t get enough the next month, you’ll be able to cover the difference).

For example, if your income is $5,000 one month and your expenses are only $3,000, put the rest away until next month. Then the next month when you only have $2,500 coming in, then you have the $500 you need already put away to cover it. You should always try to have a month or two of expenses put away in savings just in case something happens (this includes people with a fixed-type income as well), like no work, getting hurt, etc.
Krys J.

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A Well-Stocked Pantry Can Help

We live with the same situation. I figure out what our basic needs are each month. If we have a big month, I try to put money aside for “basics” as far ahead as I can. I also set some aside for bulk grocery shopping at a warehouse, or buyout store. I may pick up 10-20 pounds of flour, or stock the freezer with meat on sale, etc., or canned goods on sale. (See A Grocery Stockpiling Guide: How and When to Save.) When we have a tight month, I know we can do ok because the freezer is stocked, the money is set aside for many of the bills, and the cupboards are full.

Also, if possible, I usually take a “chunk” of money when we have a really good month and set it aside for big bills like insurance, taxes, etc. It’s really just a matter of self-discipline. If you don’t know what is coming in every month, you can not go “hog wild” when you have a good amount of cash come in. My husband and I are both self-employed, and truthfully, it gets awfully slow in our business Jan-March or April. On top of that, if he works in April, we usually don’t get our check for 30 days after that. So you can see, if we didn’t put some aside in the other months, we’d be in a big mess.
Helene M.

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Worst Case Scenario

I know just what you are talking about! I work at home as a contracted medical transcriptionist, and my workload varies greatly (someone goes on vacation, is sick, is at a conference, etc.).

What I would suggest is to set up a bare minimum, worst-case-scenario budget and live on that (I don’t mean to sound so dramatic!). Set aside money into an accessible, interest-bearing, but inconvenient account (like a savings account WITHOUT an ATM card) for when you are over budget to pay for surprises or “splurges” that come up during the leaner times out of that account.
Kristen G.

Weekly “Need” Budget

A good way to budget is to add up all your known bills (utilities, mortgage, insurance, loans, subscriptions, gas, etc., excluding food) for the year and divide by 52 to get the weekly amount needed to meet your bills. Then, any money you take in that week over the “need amount” is used for food first (mine is for food and gas because I don’t have to drive anywhere if money is tight that week).

Keep track of only the amount you make OVER your weekly “need amount” and subtract from it any time you spend money on something not included in your “need budget” like gifts, unexpected doctor bills, car repairs, utility repairs, clothes etc. Every week, add in the “over” amount to your running balance.

After using this method for a while, you’ll find out if you need to re-vamp your “need budget” (like adding $10/week for Christmas bills, etc.), but once you get the base need amount right, you’ll always know if it’s OK to take the kids to McDonald’s that week or not.

Two Variable Income Budgeting Methods

I have heard of two methods of budgeting variable income. The first is to budget normal expenses (rent/mortgage, food, etc.) according to your low-income months and use the high-income months to pay the occasional expenses – car insurance, property taxes, etc., and savings.

The other method, which I believe is more effective, is to budget for a year rather than a month. Look at your total income/expenses for the past 12 months, adjust for expected income/expense increases and decreases, and divide by 12 to get a monthly budget. On the months that you get $5,200, you only spend your $3,000 budget, putting the extra $2,200 in a savings account. Then, when you only get $2,400, you can withdraw the extra $600 from your savings account and still cover your $3,000 budget. (Obviously, these figures are only examples.)

This is difficult if you start your budget during the lean months instead of during the fat months, but it can be worked, perhaps with a combination of the two methods, until you reach your high-income months.

Budget and Save

With a variable income, it is even more important to budget since you never know exactly what will come in. Making assumptions could put you in over your head fast. I think you have two options:

  1. Average his income over six months or a year and divide. Work with this figure as your income. This will mean you cannot spend extra in the months of windfall because you will need to save it for the months of lean.
  2. Live on the least he makes and save the rest, or use the extra money to make double or triple payments on anything you can.

With contracting especially, guard your income and protect yourself for the lean times. Contracting can see not only lean months but also years. As a wife who went through this in the 1990 construction fallout in New England, be sure to make a nest egg and protect it.

Build an Emergency Fund

With these simple tips and tools, you can build an emergency fund, even while living paycheck to paycheck.

Minimum Plus Plan

My suggestion would be for you to think back on fractions in your high school math class…lowest common denominator.

Rather than trying to set a budget based on what you make, base it on what you need. Look back at your spending habits in recent months and base your budget on the minimum requirements needed to cover groceries, housing expenses, credit card debt, etc. That should be your running budget. In months when you make $5,000 rather than $2,200 put the excess in savings. Then you will have plenty when you hit a month where you only bring in $1,000, the car breaks down, or you need a little mad money.

Reviewed December 2023

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