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How should I budget if my income fluctuates?
Budgeting for an income that varies each month takes some extra effort.
Rather than starting with your income, start with your expenses.
Calculate how much you need each month for essentials, like housing, food and transportation. Then add the amount you spend on variable expenses, like entertainment, restaurant meals or other personal costs.
Don’t forget to take less frequent expenses, like travel or annual subscriptions, into account, too.
Then, calculate your typical monthly income based on the average of your take-home pay over the last year. Allocate this monthly figure to those needs and wants you determined above.
One helpful budgeting tool is the 50/30/20 budget, where 50% of your take-home pay goes toward needs, 30% to wants and 20% to savings and debt payments beyond the minimum. You can also tailor those percentages to what works best for you.
With variable income, you may have to adjust your percentages throughout the year. That might mean saving more during a flush period so you can make it through a leaner one.
It can be helpful to deposit money you plan to use later in the year into a high-yield savings account. That way, the cash is out of your normal checking account, easily accessible when you need it, and also growing as it sits there.
When in doubt, give yourself a bigger savings cushion, just in case.