Variable income can be very stressful. One month you are living it up with your hard-earned income, but the next month leaves you wondering how to pay the bills. Variable income can be a total emotional rollercoaster and takes a real toll on your mental health.

But listen up: you are not alone. A third of Americans have a variable income, including entrepreneurs, freelancers, commissioned territory managers, and even servers/bartenders - you name it! If you know what it's like to have an income that changes month-to-month, then this guide is designed for you. Here are some step-by-step instructions to help you navigate the ups and downs.

First Step: Managing Your Emotions

Our income fluctuates; so will our mood - if we let it. Through the ups and downs of variable income, it's important to prioritize self-care. Make sure you get enough sleep, exercise, and eat healthy foods. Talk to friends and family members about your situation - have a support system. And remember, focus on what you can control. It's easy to get overwhelmed by the financial rollercoaster, so focus on these steps to improve your financial stability!

Second Step: You Need to Create a Bare-Bones Budget.

Bare-bones income means using the bare minimum in your budget. Do not take the average income because that does not prepare you for the lowest-earning month. It is vital to know that number. To figure this out, consider your income over the past year or the last several months to identify your lowest-earning month. Found a number? Good, now deduct it. Being conservative by underestimating your lowest income is effective. This will ensure that you have a realistic budget you can stick to, even during lean months. With this approach, you can feel more confident about managing your finances and staying on track toward your financial goals. Any extra funds can be repurposed towards other financial goals that you may have such as getting out of debt, saving for a trip, or increasing your savings.

Another key factor when doing a bare-bones budget is understanding the distinction between fixed, necessary expenses and the rest of your spending category. This will help you determine your spending category and ensure you still have enough money to cover your essential bills.
To get started, list all your fixed bills with a firm due date, such as rent, car insurance, daycare, utilities, and other essential expenses to survive. Once you have your list, add up the total cost to determine how much money you need each month to cover these expenses:

Lowest Income Month - Fixed Expenses with a Due Date = Left Over to Spend on Variable Expenses

By separating your fixed bills from the rest of your spending, you can clearly see how much money you need to allocate toward your essential bills each month. This will help you prioritize spending to cover expenses even during lean months. With this approach, you can feel more confident about managing your finances and staying on track toward your financial goals.

But what if your income is less than your expenses? This gets a little tough, but you can do it. Make tough decisions about what expenses you can cut back on or eliminate altogether. Maybe it's time to cancel those subscriptions or memberships or start cooking at home instead of eating out.

I worked with a client who managed to barter with her landlord and get her rent reduced to $200 per month by creative negotiating! I am not saying this will work for everyone. However, it is surprising to see how many people I worked with were able to save by being creative.

Third Step: Building a Solid Emergency Fund.

Of all the things that can cause anxiety, financial worries are certainly among the most common. In fact, studies show that 75% of people with variable incomes have experienced financial stress at some point in the past year. It's important to have a safety net in place. Your emergency fund is the lifeline to budgeting with variable income.

This fund should be able to cover at least three to six months' worth of expenses. With this safety net, you'll be able to weather any financial storms that come your way without feeling like you're drowning during the low months. It's the most effective way to achieve financial peace of mind.

One Important Thing to Note: Do Not Rely on Credit Cards as Your Emergency Fund.

A big no-no. Relying solely on your credit card as a safety net is not a good idea. According to a recent survey by the Federal Reserve, 37% of Americans cannot cover a $400 emergency expense without borrowing or selling something. While credit cards may seem like a quick fix, using them as your primary source of financial security can lead to debt and long-term financial trouble. While it's okay to intentionally use credit cards for expenses, have other resources in place to protect your financial well-being. Don't let the ease of a credit card lure you into a false sense of security – prioritize building an emergency fund and exploring other financial safety nets to safeguard your future!

If you find yourself heavily relying on credit cards, it's a red flag that you may be headed for financial trouble. Mismanaging your credit cards while budgeting on a variable income is a recipe for disaster. You can learn more about other red flags associated with credit cards here.

But don't worry – by being mindful of your spending habits and prioritizing an emergency fund, you can take control of your finances and secure your financial future.

I hope this guide benefits all variable income earners from entrepreneurs, freelancers, commissioned salespeople, or servers/bartenders. We understand the process isn't easy, but it's possible. So, take a deep breath and know that you've got this. We're rooting for you every step of the way!