How to Plan Your Life on a Variable Income

If your income isn’t consistent every month or every year, is it possible to stick to a plan for your financial life? Yes, it is!

Not every career path generates a consistent income. For some of you, you may experience peaks and valleys with your income, which can create cash flow issues (or even nightmares) if you’re not careful. The windfalls can feel great, but the droughts can wreak havoc on your finances. If you’re living hand-to-mouth, you’re going to be stressed out and have lots of financial emergencies.

Fortunately, there are ways you can operate your finances successfully even under variable income conditions. If people couldn’t make it work on variable income, we would have far fewer successful entrepreneurs in our midst.

Whether you run your own business, your career is in a field like sales, or you’re a freelancer, or you have multiple streams of income that cause your income to be variable month-to-month and year-to-year, here are four ways you can prioritize your money and stick to a plan to realize your financial goals.

#1 Tighten Your Spending Belt

I know that this doesn’t sound fun. Reining in spending is probably one of the hardest financial disciplines to master, but it’s necessary to control where your money is going whether you’re on a variable income or not, but ESPECIALLY when you are on a variable income.

The key with variable income is to tighten your spending belt until you can get ahead of the goal. It’s critical that you don’t outspend your fixed monthly expenses or income since you can’t confidently borrow against a known future income to cover your necessary costs.


#2 Build Up Your Emergency Cash

One of the best ways to overcome any cash flow crisis is to have what’s known as an emergency fund: cash you can access in an emergency. It can take a while to build up this reserve of cash when you are on a variable income but stay at it and create this safety net for yourself.

For people on a variable income, I recommend that you have six months of your known expenses covered in your emergency fund. Think mortgage or rent, utility bills, insurance, any loan payments, and anticipated grocery budget and even some entertainment.

The idea is that you want to have enough set aside to live a comfortable life even in the event of lost income – those months of low income or no income.  Know that number. Let’s say it’s $5,000 a month. Now, you need to have at least six months of that number (in this case, $30,000) in your business checking or take it out of the business checking and put it in a personal savings account.

#3 Pay Yourself Your Monthly Expenses on a Weekly or Bi-Monthly Basis

Here’s the key: PAY YOURSELF ON A WEEKLY OR BI-MONTHLY BASIS so you can create consistent income to your personal account, even when your business account has inconsistent cash flow. Be sure to keep your business and personal accounts separate so that you can delineate between these two sources of money.

When you know the amount of money you need to live a comfortable life you can more accurately plan for your success. This act of paying yourself a consistent income to your personal account based on your needs mimics a normal paycheck and makes it more likely that you won’t overspend.

Remember Parkinson’s Law is that things expand to fill the space you give them. People have a tendency to spend everything in their personal checking account, so don’t put what you can’t afford to spend in that checking account!

#4 Stick to Using a Debit Card (or Just One Credit Card)

Before you get ahead of building up your emergency reserves and getting on track with reaching your long-term financial goals, put a safeguard on your spending by limiting yourself to your debit card. Only put what you can afford to spend in your checking account and then get in the habit of using that debit card. This can help ensure that you don’t overspend your cash flow.

People make a lot of noise about this recommendation: to only carry around a debit card. They say it isn’t secure. Well, frankly, I’ve never seen a breached debit card lead to financial losses since FDIC-insured cards always pay you back. That being said, if you prefer using your credit card, stick with putting all your expenses on one card and watch the balance every day. Important rule: Treat the credit card as a debit card. When the positive balance of the credit card reaches the balance of the checking account, pay off the credit card and stop spending.  


You can meet your financial needs and future goals on a variable income. I see it every day with my clients. In the beginning, when you start to make more money, don’t spend it: save it. Prioritize yourself and save your money so that you do have a cushion in uncertain times. Pay yourself first by securing your day-to-day expenses and funding important future financial goals.

As your business or income grows, your next phase is to get to where your “base” salary covers both your overhead amount of spending and your savings. You can divide your windfalls or larger amounts of profit between savings and spending, but your first goal should be to get to a place where you’re maximizing your savings in either a SEP IRA or Solo 401(k).

[RELATED CONTENT: Self-Employed? How to Choose the Right Retirement Plan for You]

If you can create consistent income in your personal account and keep inconsistent income to your business account, you can attain reliability in your financial life. Your business income might go up and down, but typically your bills don’t!