How to budget variable income in 6 easy steps

October 30, 10:01 PMPhiladelphia Personal Finance ExaminerKelly Whalen

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The common advice for budgeting doesn't seem to apply to people who have variable income, but with a little planning, and some financial sense, budgeting for variable expenses is a snap. In 5 simple steps you will have a handle on your finances, and be prepared to weather even the toughest times.

Step One: Track your money.

Look at the last 3-6 months of income, and expenses. If you work in a field that is seasonal, such as landscaping, look at the past year. It's helpful to use a personal finance site, such as Mint to be able to see all your data in one place. You want real numbers for each month. Make sure you exclude any business accounts, or expense accounts. Tally up an amount per month on average that you spent in 7 categories: Housing, Transportation, Utilities, Debt, Musts (groceries, gas for your car), Wants (clothes, dining out, etc.), Other

Step Two: Budget for your leanest month.

Look at your data from step one and find your leanest month. Use that as a basis for your budget. Anything "extra" is icing on the cake. It should be used to create an emergency fund, pay off debt, or save for things you need and want.

Step Three: Make a plan.

Create a budget based on your leanest month. If you have debt, tally how much you have, and come up with a plan based on the lean month numbers. If you don't have savings, sweep anything above the lean number into savings. Create a visual reminder, such as a debt chart so you can see your progress.

For ideas on saving more, read successful saving strategies.

Step Four: Build an emergency fund.

Create at least a one month lean emergency fund before tackling debt. If you don't have debt, continue to sweep all your extra money into specific savings accounts, and look into investing further in a retirement fund. 

Step Five: Slash your expenses.

You will immediately see a few areas where you are either overspending or spending on things that are unimportant to you. Consider spending 25% less this month on those items. If you are spending more than you earn you must immediately cut back as many services, subscriptions, and activities that you can quit. Negotiate with every company you pay. It's possible to get discounted rent, a decrease on the cable bill, and to avoid costly cancellation charges.

Want more? Try using these strategies that cut $17,000 out of the budget.

Step Six: Automate your finances.

Once you are ahead on paying bills, if you aren't already, set up automatic payments through your provider's website. Some banks offer online billpay for free, or a nominal fee (which you should get waived!) for those bills that are still sent via snail mail. Setting up all your bills to be paid automatically gives you more time to focus on the things that are important in your life.

That's it! If you've completed all 6 steps you will have a great handle on your finances, and should be able to live on less, and enjoy life more.

Looking for info on budgeting bi-weekly income? Read my article Budgeting Bi-Weekly Pay.