As someone who has been working on a
Then I got into corporate America and quickly found myself working on commission as a sales rep. It can be terrifying to some, but sales
When you don’t have a consistent paycheck every 2 weeks, it can be a little challenging to budget and be responsible with your money. You’ll want to spend when you get in that big check. And you’ll probably want to panic when you’re having a terrible month. But it shouldn’t be that way. There are plenty of tricks to make yourself feel like you’re having a consistent lifestyle and still building your personal wealth.
How To Budget When You’re On Commission
Create Two Bank Accounts
If you are one of those people who is tempted to spend money when you see it in your account, then you may want to try the same two account approach that I do. I actively use two checking accounts, and it can make budgeting much easier when you have an irregular income.
One account should be your earnings and any savings. We’ll call this your RESERVE fund. And your monthly expenses that we’ll budget for below will also go into this RESERVE fund. Then the second account should be your payout account. We’ll call this one your EARNINGS account. This is how you will pay yourself. By keeping them separate, you won’t be inclined to spend more than you have or indulge in a month when you’re having a good one.
Build Up Your Reserve Fund
You’ll most likely have to build up your RESERVE fund before you can pay yourself out in the EARNINGS fund. But that’s okay. Spend a few months putting yourself on a strict budget so that you can build this out and create a safety net.
Also, there’s ZERO shame in taking on a second job. I did this all throughout my corporate job to build a safety net and it came in handy when I quit
If you don’t have a RESERVE fund yet, that’s fine too. Work on putting a little away each month. Just be consistent and set up an automatic draft that feels comfortable for you. Then at the end of every month, evaluate what you have, what you need (more on that below) and make an additional draft if you can!
Track Everything
First and foremost, you’ll want to start keeping track of all the money coming in and all the money going out. Have a simple spreadsheet where you track expenses and be sure to record everything. You’ll want to include monthly recurring fixed expenses like rent, auto, insurance and so on.
You’ll also want to keep track of variable expenses (these are ones that may change slightly based on your month) like groceries, gas, utilities, entertainment, eating out with friends and the like. Then there are periodic expenses. These may be emergency things, or twice a year items like your dentist visit, annual physical, auto insurance or even holidays and gifts. They may not be consistent, but they’re things you know you’ll have to pay for within the 365 days. Once you track all of this, we can get started on budgeting!
If you plan on contributing to a ROTH or SEP IRA or just want to continue to grow your emergency fund, add that all in here as well for your tracking. You want to make sure any and all expenses are tracked so you can successfully plan out the next step!
Divide It By 12
Now that you’ve tracked everything and know what you typically spend in a year, go ahead and divide that by 12. This will give you the monthly expenses that you can expect. Sure, you may not pay for all of that each month. But you want to know what you need to earn in a month and put away to cover these known expenses into your RESERVE bank account.
We always seem to forget about that big auto insurance bill every 6 months, or gifts for the holidays. By taking that amount into consideration and dividing it by 12, you make sure to put away enough money every month to cover it. Therefore, when the bill comes, or the high expense month like December rolls around, you’ll be well prepared and able to pull from your reserve account without thinking twice.
TIP: You can also budget in your vacations like this too. If you’re planning on taking a $3,000 vacation once a year, add this in so you can put the money away that’s necessary to make it possible. Same goes for splurging. Want to buy a fancy purse or indulge twice a year in a shopping trip, add that in!
Pay Yourself Every Two Weeks
Now that you have two accounts and your RESERVE fund is nice and full, you can start to “pay yourself”. You’ll do this with your RESERVE fund and add it into your EARNINGS fund. By paying yourself every 2 weeks, or monthly if you prefer, you create consistency.
You can also look back at what you’ve made in previous years and subtract out your monthly expenses to get an idea of what your true take home is. I recommend being a bit conservative here so that you still maintain a great RESERVE account. But once you build up your RESERVE account and can pay a few months of expenses, you can begin to pay yourself into your EARN account. This is the account you can play with!
Automate What You Can
Once you start getting into a groove you can begin to automate things as well. I always draft a monthly amount to my emergency fund account to continue to build that. Plus, I always put some money into retirement. I do this automatically so I don’t even have to think about.
You can add this into your budget, but once you figure it out, just automate the transfers so you don’t have to think twice. When you have to manually make these transfers, you may either forget to do it, or choose not to because you’d rather splurge. The automation helps it feel like it was never really yours to spend in the first place and that’s honestly the best position to be in.
Give Yourself Grace
Handling money and finances isn’t easy. Especially at first. But creating consistency and having a plan is the best way to approach it. There will be tough months and there will be great months. Just try to remember that when you’re on an inconsistent income. Celebrate the great months with a glass of champagne or a nice dinner. But just don’t go crazy. The slow months will thank you for that.
No matter if you are self employed, or work on commission only, or just want to get more organized with your spending, I hope this post helps. One of the biggest takeaways I hope you learn from this is planning out those expenses. Holidays can always feel like an expensive time of year, but by planning for them throughout the other 11 months because you planned and divided by 12, you’ll be set up for success. What’s a tip you swear by?
