Budgeting on a Variable Income
1 Corinthians 4:1-2.
"Let a man regard us in this manner, as servants of Christ and stewards of the mysteries of God. In this case, moreover, it is required of stewards that one be found trustworthy."
Every passage of Scripture on stewardship in the New Testament deals with the issue of trust. For stewardship is a trust. We are called to be good stewards, and the more God adds to our lives, the more he is trusting us to steward.
Our stewardship of money exposes our state of our trust like nothing else (this is a theme that we will repeat many times). Budgeting is simply a way to be intentional of our stewardship. It’s not the only way, or even necessarily the “best” way, but its a good place to start.
For this reason, many people actually find some freedom within the confines of a budget. Some of us, however, have had a hard time using a budget to help us in our stewarding because we live on a variable income. Let us not make that excuse any longer. In fact, budgeting is particularly important if your income is irregular. However, how we do it is obviously different. When you have a clockwork paycheck and predictable income, you often start by allocating spending that fits within the confines of that amount. However, if your income is unstable, your expenses must become more stable and predictable. So those of us with more unpredictable income must work backwards, starting with the amount of money you will need to spend in order to find out how much you need.
Step 1. Build a safety net.
You’ve heard this from every budgeting voice out there, and now you get it once more. It may take you a little time, but this is a vital addition to anyone living on a variable income. Having a month or two (average salary) saved up supplies you with a few benefits.
One important benefit is that you’ll build some stability. Instead of panicking because you hit an epically bad month, you’ll simply pull a resource from your stash. Then, when you hit a month with higher returns than normal, you’ll repay that amount to your stash. In this manner, you won’t have to adjust expenses from month to month.
Step 2. Find your baseline expenses.
There are some good tools to help you find what your expenses are and should be, and how to categorize them. The 50/20/30 rule is one method that separates your expenditures into three categories: essentials, priorities, and lifestyle. There are other ways to do this, but find one that is right for you and get to work.
The main goal is have an understanding of what your bare bones budget could be if it had to be. Things that are considered essential are expenditures you'll need to afford no matter what your income looks like. These are the "air and water" of your budget and you can't live without air or water. After you've got your essentials figured out, you can add in some priorities and lifestyle. You will want to prioritize these as well, as decisions may need to be made soon about which priorities to keep or not in any given month.
This isn’t just an important task for the sake of finding numbers. You’ll learn a lot about what you currently categorize an essential or a priority. You might just find that defining these things will lead you to redefine them.
Step 3. Consider a zero-sum budget (or other tools.)
A zero-sum budget forces you to “spend” every dollar you bring in. OK, maybe you’re not “spending” it, but you’re forced to allocate it somewhere.
As an example, if you’ve paid for all of your essentials and priorities, but you still have $200 in your account, that money doesn’t just sit in your account as surplus. It must be given a job. You can transfer it to a savings account, put it towards an extra mortgage payment, or start a Christmas fund. The goal of a zero-sum budget though, is to give every dollar a job. I would recommend, however, that since you’re on a variable income, you lean towards saving a little extra for your emergency fund when you can.
You’ll be surprised how giving each dollar a job will also create intentionality with each dollar. This one change can lead to new mind sets and ways of viewing “extra” cash. There is a lot of help out there for people interested in zero-sum budgeting. Tools aplenty.
Step 4. Don’t fall back into old patterns.
Some advice out there will tell you to start budgeting with the money you have. That’s only good advice in certain situations. Don’t fall back into patterns where your income dictates how much you can spend. You’re working backwards now. If your essentials and priorities are consistently more than what you’re bringing in, and your stash is getting low, you may need to find a way to lessen your essentials (sell that new car) or bring in more money.
However, if you forget the plan and start spending what you bring in, you’ll find yourself losing traction in the battle for intentionality.
Use these steps as guidelines to variable-income budgeting, and feel free to insert some of your own ideas. The goal is to get you to start to think differently, to be intentional with every dollar, and to save for rainy months.