Managing your family budget with a variable income can be a challenge.
Irregular paydays can test even the most astute budgeter, so it’s important to have a system for when your income goes up and down.
We’ve been on a variable income for years, and this is the method we use. It works whether you’re self employed, on commission, or paid for irregular hours.
You can run it weekly, fortnightly or monthly. Pick whichever matches how you like to look at your money. We do ours weekly.
The fix is to stop budgeting on your income and start budgeting on a number you control – so this system of budgeting is built on your bare essential costs of living.
That means you have to be frugal, but you’re able to put everything left over towards the goals that matter most.
Table of Contents
How to Budget on a Variable Income
1. Work out your floor
The real key to managing a variable income budget is knowing your floor.
Your floor is the least you need to live on for one week, fortnight or month. It covers the essentials: housing, power, food, transport, insurance, minimum debt payments and the basics for your kids.
Be honest and be specific. This number is the foundation of everything else.
If you’re not sure what your essentials really cost, the free Zero Sum Budget Template will help you work it out. Its frequency converter means it doesn’t matter if your income arrives at different intervals. You just enter what you expect and how often.
2. Get a week / fortnight / month ahead
This is the hardest step, but it’s the most important.
Once you know your floor, save one full cycle of it and leave it there. That’s your buffer.
It means a quiet week doesn’t turn into a panic, because this week’s living costs are already covered before the money arrives.
If you don’t have savings yet, I recommend checking out this post on how to get a month ahead on bills (you can also apply this to getting a week or fortnight ahead).
I also recommend having a fully funded emergency fund. It’s one of the best forms of insurance you can have.
If your lowest earning week doesn’t cover your floor, work on a bare minimum budget and focus on lifting your income before moving on. Every other step works better once you’re ahead.
3. Pay yourself the floor, and only the floor
This is the step that makes variable income manageable.
If you’re self employed, leave the money in the business. Each week, fortnight or month, move across only what you need to live on. That’s your floor and nothing more.
If you’re on irregular wages, the same idea applies. Let everything land in one savings account, then pay yourself the same set amount from there each cycle.
Either way, your personal money now arrives as a steady, predictable amount, even when your income doesn’t.
4. Zero-sum budget that amount
Now give every dollar of your floor a job.
List your bills, your groceries, your fuel and your sinking funds for the things that come around yearly or occasionally. Assign amounts until the total matches what you pay yourself, with nothing left unassigned.
We use multiple bank accounts for this, and they all offset our mortgage.
This zero-sum budget only covers the money you pay yourself. It doesn’t cover everything the business earns.
Then live inside it. Only spend what’s in each category, even if there’s more money sitting somewhere else. This is perhaps the most testing step, and it’s what makes the system work.
Having a decent lump sum for groceries each cycle is especially helpful, as it lets you stock up on bulk buys and clearance deals.
5. Send everything above the floor straight to your top goal
Good weeks will happen. When they do, the extra above your floor doesn’t go into your spending, and it doesn’t sit in your everyday account either.
It goes directly to whatever your most pressing financial goal is at the time. For us that might be a lump sum straight onto a loan, a top-up to an investment fund, or a transfer into a savings account for something we’re working towards.
Sending it straight there means it can’t get spent by accident. It’s also easy to see the progress when each good week has a clear destination.
When your priorities change, the destination changes. The method stays the same.
6. Review and amend
At the end of each cycle, check where you overspent and whether your floor still covers real life. Prices change, kids grow and bills creep up.
If you need to adjust up or down, you can. Then keep going.
Why We Don’t Use 50/30/20
The 50/30/20 Budget needs a steady income to work. If your income changes every week, there’s no fixed amount to take a percentage of. It’s also unrealistic for a lot of households in today’s economy.
A floor gives you something solid to plan around.
The Bottom Line
Living on a variable income can be difficult, but it’s not impossible.
You get ahead, you find your floor, you pay yourself a steady amount and you send the extra straight to your next goal.
You have to lean towards frugality to make your money work on a variable income, but it’s a skill that’ll stay with you for life.
We will continue to budget this way, regardless of how much our earnings increase. It’s the perfect antidote to lifestyle inflation. A big week doesn’t change how we live. It just moves us closer to what matters.
Ready to put this into practice? The free Mum’s Money Zero Sum Budget Template was built with variable income households in mind. You can grab it here: Free Zero Sum Budget Template
