How to Budget when Your Paycheck Varies

Budgeting is easy – well, easier – when you know exactly what your paycheck will be from one week to the next. You can plan for every eventuality and you never have to worry that the money simply won’t be there. However, learning how to budget when your paycheck varies is an entirely different animal.

USA family financeThere are hundreds of careers that involve paychecks that vary, and there is nothing wrong with having a slightly unstable payrate. For example, if you are a waitress, then your monthly income depends upon how much money you earn in tips. There is virtually no way to change that amount; if people don’t tip, then you don’t get the money. The same is true for someone who works on commission. Although you can always improve your sales tactics, you have no control over how and when people will buy your product. Another example of someone whose paycheck varies is a person who owns their own business. That is perhaps the most unsteady of incomes because your entire revenue depends on the success of your own business. The only way to get a raise is to improve your business.

How to Budget When Your Paycheck Varies: Average Your Income
There is no way for you to successfull budget a variable paycheck unless you can average your income. Go back at least six months (a year is better) and write down your paycheck amounts (or income) for each of those months. Add them all together, and divide by the number of months. For example, if your last six months of pay were: $2,400, $2,600, $3,200, $1,200, $2,000 and $3,000, then you would add those all together and divide by six. The end result is that your average income is $2,400.

How to Budget When Your Paycheck Varies: Average Your Expenditures

This is somewhat difficult than averaging your income, but it’s certainly doable. During the next month, write down everything on which you spend money. Include bills, grocery visits, eating out, entertainment costs, insurance, clothing and everything else. Separate them into categories; one should be things that you must pay every month, and everything else is extraneous. Obviously, you will spend more one month than you do another, but the point here is averages.

How to Budget When Your Paycheck Varies: Monthly Income Expenditures
Next, compare the two averages. For example, let’s say that your average expendistures amount to $1,800. Your average income, as mentioned above, is $2,400. That means that, between the two, you earn an excess of $600 per month on average.

How to Budget When Your Paycheck Varies: Plan for the Low Months
Just because your average income is $2,400 doesn’t mean that you will make your average every month. As mentioned above, some months you might make $3,000, but you also might make only $1,800. If your expenditures are lower than your lowest month of income, then you’re better off. However, if your lowest income is higher than your average expenditures, then you will have to budget accordingly.

How to Budget When Your Paycheck Varies: Savings
In order to budget for the lowest of your months, you will need to have a system for saving during the more lucrative months. For example, if you earn $3,000 one month, it isn’t frugal to go out and spend the $1,200 difference between that and your average expenditures. Instead, save that extra $1,200 for the low months, and live within your budget. Before you know it, living off a variable paycheck might result in a large and healthy savings account.

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