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Managing Money On A Variable Income – Guest Post

The following is a guest post by DebtKid, who writes about his journey to get out of debt, and achieve financial stability.
He also runs the
Money Hackers blog network.

Getting out of debt has become the new mission for many consumers. Heck, It's my number one personal mission! Now that the days of easy credit and lucrative terms are history, many consumers are facing the harsh reality that their paycheck cannot support the lifestyle they have become accustomed to living. Regardless of all the advice about living within your means and not using credit as an extension of your income, millions of consumers have been doing just that for years.

With credit limits slashed and banks refusing loans the only way to get out of this mess is to eliminate your debt and start over with a budget based on your actual earnings. What happens when you don't know how much money you will be making?

Some people think it is a waste of time to create a budget when you don't know exactly how much money you will be making, however these are the individuals who need a budget the most. Here are a few tips to help create a workable budget which will allow room for savings and debt elimination while living on a variable income.

  • Determine earnings – Even for those who do not have a set pay amount, it is possible to look back over the past 12 months and determine an “average” dollar figure in terms of income. Whether you work on commission or are self employed with periods up feast and famine, you should be able to pinpoint a low earning amount to start your budget. If you base your budget on your lowest earning period, when you make more money it will be “extra” versus finding yourself short each month.
  • Pay necessities first – It is especially important for individuals who have unpredictable earnings to budget for necessities first before spending money on non-essentials. Necessities are the things needed for survival (or at least survival in relative comfort) such as rent/mortgage, food and utilities.
  • Think long term – Living on a variable income requires a person to think beyond this month's financial obligations. In order to make it through the lean times, you must use money from the “good” times to grow your savings and eliminate any high interest debt. This is true for all individuals however especially important when you do not know for certain how much money you will make from one month to the next. It may be tempting to use a big paycheck to splurge on luxuries, however this will only increase your financial problems in the long run. Once your necessities are covered most of your remaining income should be allocated toward savings to ease the burden in future months when money is tight.

Living on a fixed income affords a certain security in that you know what to expect each payday to create a workable budget. The same can be true for individuals living on a variable income if they take the time and put forth the effort to create a realistic budget.

By eliminating debt you reduce the number of financial obligations which will instantly put more money back in your pocket. Building a well padded savings account also provides security when you face low earning periods. These simple steps help add some predictability
to an otherwise uncertain future.

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November 7, 2009 at 11:29 am


Neil November 5, 2009 at 8:12 am


This is very good advice that I should have followed about 10 years ago! I failed to survive a lean time when doing contract IT work and am now a bit scared to back to it.
.-= Neil´s last blog ..The Elusion of Financial Freedom That Debt Can Bring =-.

Craig November 5, 2009 at 12:19 pm

It has to be harder with variable income but hopefully you have a rough idea the range it can be. If that’s the case you can plan early on better months to put away and save for those months that may have less.

Credit Card Chaser November 6, 2009 at 1:44 am

I am reminded of some of the verses from Proverbs in the Bible that talk about how the wise person works hard and gathers up crops during harvest so that they have reserves during the winter while the fool is lazy during the harvest and then when the winter comes they do not have the food that they need.
.-= Credit Card Chaser´s last blog ..Chris Dodd Indirectly Wants to to Make it Harder to Get a Credit Card =-.

Al November 6, 2009 at 12:47 pm

I have been living by these rules for years and it brings peace of mind to know you have a buffer and has given me flexibility to be self employed. BUT I am now taking a lot of that buffer and putting it towards buying a house. I’m thinking of the long term but I am worried how I will cope with the added stress of a vastly reduced buffer and larger payments towards a mortgage…but I can’t keep throwing away money to rising rent while property prices move upwards out of reach…..

I now reluctantly enter the world of debt, wish me luck…….. : /

Financial Samurai November 6, 2009 at 4:35 pm

Thnx for the post! It’s good to assume your “normalized income” is actually your lowest point of your variable income. If you were to do that, all is good.

I’m just fascinated DK about how you went $300,000 into debt trading! That is an incredible story that I would love to hear with new angles.

Thnx, FS
.-= Financial Samurai´s last blog ..Never Call In Sick On Friday, Slacker! =-.

FinanciallySmart November 6, 2009 at 5:45 pm

Most persons are afraid of preparing a budget because they don’t want to stop some habits. Your article is very informative. Yes once a person eliminate their debts then he/she will have this money to used as an investments or just place in a savings or retirement plans.

Walter November 9, 2009 at 3:27 am

Responsibility and discipline is a big factor on how we manage our money. Without incorporating these to our financial strategy, one is sure for mismanagement. 🙂
.-= Walter´s last blog ..Senseless arbitrariness =-.

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