How to Budget With a Variable Income

July 26, 2021
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During my first month as an entrepreneur back in December of 2018, I made $226 as an administrative assistant. Fifteen months later, I would go on to quit my day job and make upwards of $5,000 a month as a freelance writer and content creator for Rosetta Stone. 

While I had excitedly waited to get to this point, it was still hard for me to give up the financial security of my day job. Without corporate perks like PTO, health insurance, and automatically deducted taxes, I suddenly had to make sure I had enough to get through the expected—and unexpected—costs each month without the help of a regular paycheck. 

As an entrepreneur or freelancer, it is completely normal to have an irregular income, but it can definitely make budgeting your money a little trickier. Luckily, after a lot of trial and error and some helpful advice from a top-notch financial coach, I can finally say I’ve figured out how to budget with a variable income. Since this is something I wish I had known years ago, I decided it was time to share with my fellow business owners!

1. Calculate Your Monthly Needs

Before taking control of my budget, I had no clue how much I really spent per month. Like most young business owners, in my first two years of business, I was pretty much taking whatever job I could get—mostly because I just needed to get my bills paid. Never really knowing how much to expect from month-to-month, I ignored my bank account completely.

Every month I would just cross my fingers and hope I wouldn’t get an “insufficient funds” notice from my bank. But, this method led to a lot of extra stress and negative emotions around money. 

So, one day, I sat down and went through my last three months of bank and credit card statements and looked at how much I had been spending on necessities. This helped me figure out how much I really needed to be making each month to get by. Some common needs within a personal budget include things like:

I also included the needs I had for my business. Some common business needs within a budget include things like:

And this isn’t just what I learned from personal experience. When I sat down with financial coach Yvonne Tran for one of my podcast episodes, she echoed this sentiment as well. “If you have variable income my biggest tip would be to know how much you need to pay every month for expenses or bills and make that a goal to bring in every month in your business,” Yvonne shared.

2. Reset Your Money Mindset

Like it or not, we all have certain ideas about money. Whether you grew up hearing “money is the root of all evil,” “a penny saved is a penny earned,” or any other common money-related beliefs, our society has a lot of positive and negative associations with money.

Having grown up in a family of entrepreneurs, money struggles—and the negative money mindset that comes with them—were no stranger to me. For a long time, money was something that I considered stressful and even dirty. It wasn’t until I learned to see money as a tool and something to be grateful for that the money really started flowing. 

Money mindset is definitely really important because if you view money as so stressful, super complicated, and intimidating then I can show you all the ways that you can fix your financial situation, but if your mindset is telling you ‘no’ then it’s not going to work out in the end,” Yvonne told me. 

A few ways you can reset your money mindset are:

3. Cultivate Healthy Money Habits

Creating a strong budget and resetting your mindset creates a strong foundation for making good financial decisions, but keeping up with those good financial decisions means you have to cultivate healthy money habits too. Some healthy money habits that could help keep your budget on track are:

Yvonne is a big proponent of saving, especially when you have a variable income. “If you happen to have a short month one month and not bring in as much as you need then hopefully you’ll have that extra savings already set aside,” she shared. “That way, that can come in to fill the gap for that month, and then you’ll just work harder next month to bring in more money.”

4. Re-Evaluate Your Budget Each Month

If you have a variable income it is best to evaluate your budget pretty frequently. By re-evaluating your budget more often, you’ll have a better handle on your money as your income changes.

Since I can usually predict my income for the next few months, I tend to re-evaluate my budget each quarter, but monthly works great too. Here’s the method I use: first, I calculate how much I’ll be making over the next three months. Then, I divide that up to give myself a general monthly budget. Finally, I calculate all of those personal and business needs we talked about earlier. 

Next, I subtract my needs from my income and I use that final number as my budget for the month. I’ll usually take out a percentage for savings, but the rest I let myself spend freely. Some people prefer to take their savings directly out of their income, but it makes me feel better knowing everything else is taken care of first. This works well for me because on good months I can splurge on certain items, whereas on not-so-good months I have to reign myself in a little bit. But either way, it gives me a concrete number to focus on each month. 

There are hundreds of ways to budget your money, but the best budget is the budget that works best for you. I tried a lot of budgeting methods before I found one that really worked for me, so don’t get discouraged if you struggle a little bit. For me, once I changed my mindset around money everything changed, so I would definitely suggest digging into your own stories around money before getting started. Happy money-making!

About the Author: Calli Zarpas is the founder of the Do Well Department, a holistic business program created to help overwhelmed business owners cultivate a business and life they love. When Calli isn’t running her community, she’s writing her weekly newsletter and hosting her podcast called Unstrictly Business, all about how successful business owners foster success in both their business and personal lives (Yvonne’s episode is an awesome place to start!).

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