Sticking to a budget can be challenging enough with a steady income, let alone when your income varies.
This includes the self-employed, casuals, shift workers, FIFO and salespeople to name a few.
A fluctuating income can feel like you’re going between feast and famine, leading to increased stress because your basic human need for security is challenged. (HT to Maslow.)
The good news is that the core principles I introduce in my mini-guide “How to Stick To a Budget” still apply when your income varies, with a minor adaption.
Think of yourself as receiving a steady base income plus a variable bonus once or twice a year.
This is achieved by inserting an extra bank account into your budgeting system that acts as a reservoir. The reservoir smooths your regular income and accumulates the bonus until preset payment dates.
The split of your income between base and bonus needs to be personalised depending on how much your income fluctuates. The more unpredictable your annual income then the lower you may need to set your base.
Whilst an extra bank account may seem like extra work, it actually makes it easier to manage your spending because with a smooth income it’s clearer what you can afford week-to-week. Plus it reduces the stress of daily uncertainty.
Most of us know someone with a variable income. I’d love it please if you give them a helping hand by forwarding this article to them.