How We Budget and Save on a Variable Income

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Managing a budget on a variable income can be a challenge.

Irregular paychecks and varying amounts will test even the most frugal so it’s especially important to be vigilant when planning your budget and how you’ll manage your money when your income fluctuates.

We are currently living with (and thriving on) a variable income.

It wasn’t always easy though. Last year my husband started a new job, in a completely new industry to him.

Although the base salary was low, he accepted the job as it was close to home and aligned closely with our life goals of more family time and less stress.

Financially, it would provide a living closely in step with our basic budget, we were going to be ok, but we wouldn’t be getting rich.

A few weeks after he started, the company’s bonus scheme was explained to him.

There was the potential for him to earn almost 50% extra each week if he became an ultra-productive welding machine!

After a few months, he started to make his bonus, some weeks he’d bring in an extra $40, on excellent weeks it’d be more like $300. Either way, week to week, his income varied greatly.

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Being the savers and planners that we were, I must say I struggled with this way of getting paid.

I really liked having a big-picture idea in my head what money was coming in and when.

I had to find a way to ensure all the bills were paid, but also give us money to save for travel and our life goals of early semi-retirement. It’s here when my backward budget really came into its own.

Our budget is based on our bare essential costs of living. That means we have to be frugal all the time, but we are able to save and invest heavily with what’s leftover.

This system of budgeting can work perfectly for those of you on a variable income, also.

How to budget on an irregular income

1. Get a month ahead

This is probably the hardest step but it’s the most important.

In order to get one month ahead on your budget you need to carefully calculate exactly what you need to spend each month, and then allow an extra buffer.

We figured we’d need $2500 per month in order to pay all of our bills and feed the kids well.

We had that amount in savings but if you don’t have savings, I recommend checking out this post to get you started with your monthly nut.

2. Budget monthly, regardless of pay frequency

I always budget monthly by allowing a set amount each month for essential living costs.

On the first day of our monthly budget, I get online and transfer the amount of $2500 from our Savings account to our Bills account.

I then pay all the essentials – transferring the monthly amount to the mortgage, a monthly grocery allowance to the cheque account, and keeping what’s leftover in the Bills account for direct debits.

3. Accumulate funds in a separate account

All the wages and extras – my business income and tax credits – accumulate in the ‘Savings’ account. I leave them there until we hit our monthly sum of $2500.

Sometimes that will take 4 pay weeks, sometimes it takes 3. We’ve had some cracking bonus weeks’ where we’ve hit our living costs for next month in 2 weeks. I love those months but they’re not the norm.

Regardless of how long it takes to hit $2500, the next step is the same.

I gleefully transfer the excess into our travel savings account. For now, that is our main focus so we save towards that each month. (Side note: this is why the 50/30/20 Budget wouldn’t work for us – we can’t allocate an exact % each month).

4. Live as if the monthly sum you’ve budgeted is all you have

This is perhaps the most testing step, you must live as if you only have your monthly allowance.

In the beginning, I struggled with this as I knew I had more money in a different account, but now it’s become second-nature to only spend the set amounts in each category of our budget.

Having the large lump sum for my groceries each month is especially helpful, as it allows me to stock up on bulk-buys or clearance deals.

5. Review and amend

At the end of each month, I review our spending – which I track religiously via Toshl – to make sure we haven’t overspent.

I also review whether we’ve given ourselves enough to live on comfortably. If I need to adjust up or down, I would. So far, we’ve been fine with what we spend and haven’t needed to adjust the amount.

Living on a variable income can be difficult, but it’s not impossible. You have to lean towards frugality to make your money work on a variable income, but it’s a skill that’ll stay with you for life. 

We will continue to budget this way, regardless of how much our earnings increase. It’s the perfect antidote to lifestyle inflation and allows us to chip away at our financial goals on a small income.

Emma

Emma

Hi, I'm Emma. I set about gaining financial freedom back in 2012 when my son was born. I've been hustling to pay down debt, save money and build online and passive income streams ever since. You can find out more here.

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