How to Manage Your Money with a Variable Income

4 min read
December 01, 2015

How to Manage Your Money with a Variable Income

If you’re self-employed or are paid on commissions, then you know very well that it can be a nightmare to manage your money with variable income.

On the one hand, you always have the opportunity to make more money. Just put in a little extra elbow grease or close a few extra sales. But on the other hand, cash flow gaps happen. You could have a slow month, or maybe you weren’t able to work as many days due to illness.

But you can learn to manage your money even with a variable income that ebbs and flows. Start by putting these tips to work for you.

Calculate Your Minimum Acceptable Income

When you’re self-employed you actually have to deal with two budgets: you have your personal budget for all of your living expenses, and you have your business budget for all the services you need to continue making money.

This can get very confusing. To make matters worse, self-employed individuals have been known to sacrifice their personal financial goals in the name of the business. That means they continue throwing all their money into their investment (often on things that are unnecessary) without taking care of their own financial needs.

Here’s the solution: you need to figure out what the bare minimum budget is for both your personal finances and your business finances. Determine what your business needs to run each month and calculate what you need to live on each month. This gives you a number you can use to figure out your bare minimum income goal for each month.

To start, you need to evaluate your current situation and then track your spending. can help you figure this out for free. Simply connect your bank accounts, spend time categorizing transactions, figure out where you can cut expenses, and create your two budget categories.

Note that this is the bare minimum amount. Start here, but know that eventually you’ll need to account for taxes, savings, and retirement contributions in order to get a full financial picture.

Determine Your Tax Rate

If you have variable income, there’s a good chance that your income is pre-tax dollars. That’s why it’s up to you to save for taxes as you make money. This is an integral part of managing your money when you have variable income and it’s an area that can get ugly if not properly handled.

The Money Book for Freelancers, Part-Timers and The Self-Employed suggests creating a separate savings account where you sock away at least 15 percent of everything that comes in. This covers the federal self-employment tax when Uncle Sam comes to collect his share.

However, it would probably be wise to sit down with a financial professional to figure out what your tax rate actually is instead of relying solely on a guesstimate. This varies by community, state, how you make your income, deductions, and so on.

Rather than trying to figure it out yourself, create a tax plan with your accountant. They are much better qualified to help you with taxes when you manage variable income.

Pay Yourself First

This applies to everyone whether they have variable income or not. If you want to meet your personal financial goals, you must make sure to pay yourself first. That means you sock away some money for yourself before you pay anything else.

This is a difficult thing for people to do. If you have variable income, you worry that you won’t make enough to cover all of your expenses. Paying yourself first seems like a major risk.

But consider what begins to occur when you do get in the habit of paying yourself first. The most obvious benefit is that you actually begin to grow your savings. This will help cover you during lean months.

The second benefit is that it may actually force you to make more money to cover your expenses. Or, at the very least you’ll be more conscious about the money you’re spending throughout the month because you begin to prioritize your own financial needs above all else.

In essence, it’s not just a new behavior to take on, it’s actually an entire shift in perception. With time you begin to realize that you do have enough to meet all of your needs and it becomes much easier to manage your money.

Allocate Using Percentages Instead of Amounts

One way to make sure you manage your money when you have variable income is to budget using percentages instead of specific amounts. Simply put, if you have variable income it can be difficult to say “I’m going to invest $X into an emergency fund every single month.”

You could do it that way if your income is pretty regular, but what about the months where you make more money? Is it just going to sit there or get spent? Or what about months which are a little leaner and maybe it’s between saving $X and paying the credit card bill?

One way to deal with this is to do all of your budgeting based off of percentages. You already do this for your taxes. Now apply the idea to other parts of your budget, too.

Tiffany “The Budgetnista” Aliche, for example, states how she allots 5 percent of every client payment toward her emergency fund. This allows her to make sure she saves for emergencies without overextending herself due to fluctuating income.

While managing money with varying income is a little more convoluted, it can be done. There are plenty of people who manage varying income successfully and by following our guidelines you’ll be able to do it too.


Amanda AbellaAbout the Author: Amanda Abella is an Amazon bestselling author, speaker and personal finance expert who helps millennials make money their honey through online business. She has built an online brand that touches thousands each month and has been featured in Forbes, The Huffington Post, Seventeen Magazine and more.