Some people’s paychecks all look the same, and some people’s paychecks don’t. Those of you who work in sales or are self-employed likely understand exactly what I’m talking about. When you are in a sales or entrepreneurial role, you usually experience variable income. This makes budgeting harder, but also more important.
The added complexity of irregular income can be minimized with a standard budget and the use of an extra bank account. Here are the steps.
- Open a separate bank account called Income or Owner’s Pay that is used to hold money that will be used to pay yourself. If you receive large commissions checks, deposit the full amount into this account. If you are a business owner, transfer a percentage or your total revenue into this account. Figuring out the percentage, depends on your tax savings rate and your overhead costs.
- Create a standing budget template that includes all of your monthly personal living expenses. Divide the expenses into first- and second-half-of-the-month payments. Note the total needed for each half of the month. These amounts should be less than or equal to the amount you pay yourself.
- Now that you know the amount needed to cover expenses, transfer that amount from your Income/Owner’s Pay account to your regular checking account from your new “income” account. Many choose to do this on the 1st and 15th of each month. The amount you pay yourself remains consistent regardless of your actual income for a given month. This way a more profitable month can buffer a less profitable month.
Doing this gives a sense of consistency that smooths out the routine of budgeting and bill payment.
As always, it is important for all of us to create a monthly budget and track our expenses against that budget at month end. This improves our relationship with money and helps us find any leaks!
