So you have a fluctuating income. Maybe you are commission based or maybe your work is seasonal or you are on some hybrid variable income scale, whatever the case may be there are at least a few pay periods a year where you aren’t sure what the amount of your paycheck will be. This is an interesting place to be in, one which I can say I have lived in for the last 10 years or so. This type of income structure can mean a lot of different things for your financial life. It can mean you have times of great abundance and conversely it can mean months of barely making it. What it surely doesn’t mean is that you have a steady, regular financial life. There is nothing simple about living on a fluctuating income.
Your first step to a more even financial life is to know what you are working with. It’s human nature to keep your eyes focused forward, but stopping to take a look back is the right place to start. So turn around and assess your financial year by asking and answering these four questions:
Over the last 12 months what was your income each month?
For those 12 months what was your average monthly pay?
What was the highest month?
What was the lowest month?
By knowing your numbers you start to see a clearer picture of your income. Do you see any seasonal patterns arise? What about when major dips or major leaps occur? A similar and equally interesting study would be to do the same exercise with your expenses. Beyond fixed expenses are you spending the same amount each month, or are your expenses following your income?
Living on a commission income doesn’t mean you have an excuse not to budget, it’s the opposite really. You need budgeting EVEN MORE than a salaried person. Your rising and falling income requires careful planning.
Most personal finance education is not geared toward you, but I’m trying to bridge this gap with the workbook I created and the book I have coming out in January. Your situation comes with unique roadblocks and it requires particular advice.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.