Many families have to deal with an income that changes each month. Whether mom works a seasonal job for extra money, dad is paid on commission, or they both run a business where employee payroll is doled out first, there are many situations where a family’s income is different each month.
How should you budget in this type of uncertainty? The key is determining a base amount to rely on and start with as your foundation. This dollar figure will depend on the type of income situation you are in. However, the important piece is finding a base monthly income that is the lowest you expect to ever make. For a salesperson, this may be a base salary without commission or for a business owner it may be the slowest sales month’s profit. In some cases, it may just be like living on one income through your budget if one spouse has a steady payroll while the other’s fluctuates. Ultimately it will depend on your unique situation, so first determine your family’s bare bones salary expectation.
Once you have this number, create a basic budget off of it. In an ideal world, this lowest expected salary will at least cover all your necessities. But, this is not always the case. Either way, create a budget that fits as close as possible to this lowest amount of income.
Then, you will need to create one of two additional budgeting accounts. They both can be called the same thing – Additional Income. Then, depending on your situation, they will have two different purposes.
For some people, this higher tier of their fluctuating income will help to cover their necessities at times of scarcity. In this case, you will almost treat this Additional Income budget account like a temporary savings account. Basically, you are setting aside this money to help pay expenses during those low months so the whole equation will balance out.
For others, the extra income is truly extra. If that is the case, you should use the Additional Income account for your investments like retirement or college savings accounts, to pay down any debt, or for those more luxurious expenditures like a vacation or new furniture. Once again, this will depend on your family’s own personal goals and current financial picture.
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