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If you’re trying to set up a budget and have a variable income (due to owning your own business, being in sales, or other reasons) it can be hard to know where to start at first. But the principles are the same. You still:

1. Add up all of your fixed monthly expenses (such as house payment, car payment, phone bill, health insurance, etc.)
2. Add up all of your variable monthly expenses (such as groceries, gas, electricity)
3. Add up all of your irregular annual expenses (such as car insurance, Christmas & birthday gifts, taxes, memberships)
4. Allow for long-term savings for retirement & other goals.

Total your expenses, and divide by 12. This gives you the least amount of money that you’ll need each month to break even.

If you don’t have any sort of guaranteed income at all (which is the situation I was in for four years) you’ll basically need to go into super-savings mode at first. You’ll have to be like the ant, and not the grasshopper, reminding yourself that the times when you do have money are exactly the times that you need to save most. I usually did that until I had 6 months or more worth of expenses in my short term savings account. Once I reached that point, I relaxed a little now and then, but it was important to still remain aware of exactly how much was going out and coming in. My reasoning for relaxing slightly after the 6 month mark was that I could always get a temp job for a few weeks if I needed to, but I dreaded that so much that I was highly motivated to keep my savings at a high level. (Remember that this amount doesn’t include your long-term savings.)

Probably the hardest part about having a variable income is getting used to knowing that you CAN spend money even though it’s not coming in, as long as you’re not going over the monthly amount that you figured up, and as long as the flush times continue to be often enough to keep things relatively stable over the long term. Of course, it can also be hard to know that even though you have thousands of dollars sitting in the bank and the immediate prospect of more coming in, that you shouldn’t go splurge on a last minute trip to the Caribbean.

If only a portion of your income is variable (say, because one person has a salaried job, and the other receives straight commission), things can be much easier. In that situation, I’d suggest living off the salaried income, and using the rest for savings, long-term goals, and the occasional splurge. Or you can do a combination of the two methods.

Sometimes people find having a variable income a little intimidating, but it’s not really any scarier than having a salaried job. It’s just a mental thing. For example, the state where I live is a right-to-work state, which essentially means that anyone can be fired at any time without cause. So to my way of thinking, living with a variable income just helps you to be a little more aware of expecting the unexpected.

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