How to Budget with Commission-Based Income

Here's How to Budget When You're Not Sure What Your Next Paycheck Will Bring

Transitioning into a mostly commission-based role from a salaried position can be a great move. However, it can be worrisome trying to budget with varying paychecks, particulary as inflation creeps up. How do you prepare when you're not sure what your next paycheck will be?

The best advice is: You can't count on a steadily large paycheck, but you can regulate your spending. Keep your non-negotiable costs under what you anticipate to take home during a slow month, if you want to avoid dipping into your emergency fund during bouts of lower income.

Negotiable expenses are those that you can live without, and only you know what they are. They'll undoubtedly include food, shelter, and retirement, but they may also include a monthly subscription to the meditation app so you don't get into fights with your spouse. Maybe takeout once or twice a month when you're working late is a necessity for you.

Leave your more lavish expenditures—fine dining, spa visits, and a new tattoo—for the next time you have a fat bank account. Consider increasing your retirement and brokerage accounts during those months.

Another person might advise you to eliminate the meditation app and takeout, and  live a minimalist lifestyle on your more stable, non-commission income. And if you can do that and still be happy, then go for it.

However, if you and your spouse have a reasonable income, that is, you don't spend everything you earn each month. It's unrealistic to demand that you substitute steak for ramen every time your earnings decrease because of the built-in cushion. If you want to live larger, you can certainly afford it.

What is considered a slow month? If you have been working for a while, then it’s the average of your worst three months in the previous year. You won't have the same first-hand historical data, so you'll have to rely on estimation, which is inherently hazardous. If you anticipate a higher income than actually materializes when commissions are down, you might need to borrow from savings to cover your expenditures.

Budgeting isn't as formulaic as it appears. It will take time for you to feel at ease with your spending while your earnings yo-yo, but you'll eventually get into a budget that feels right and allows you to live your desired lifestyle.

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