How I manage my finances with a variable income

When I started freelancing, I had to learn how to manage my finances with a variable income. I remember how ten years ago, I was making a comfortable salary working as a producer. I say comfortable because it covered all my monthly expenses, investments and savings. I still had a bit left at the end of the month. It was more than I make on average now. 

If you’re like me, there’s a good chance that your income doesn’t come in consistent amounts every month. When you run a business, you’re never sure exactly how much money you have coming in. So even if you’re making a decent living, you sometimes go for long stretches feeling like you’re barely scraping by. 

Being the planner that I am, I must say I struggled with this way of getting paid. I really liked having a big picture idea in my head, what money was coming in and when. So I had to learn a new way to handle my money in a way that serves me. 

If you’re having a hard time, managing your finances, there are ways and financial tools that can assist you to manage your variable income, and run your business better. I have a few strategies in place to help me manage my finances in a way that doesn’t disrupt my lifestyle. If you find yourself in a position of having a variable income, here are some lessons I've applied along the way.

- Moving from a predictable salary to a highly variable, occasional check was a big change in my thinking and financial planning. Initially, I had counted my chickens before they hatched. Big mistake. If the money is not yet in my account, I'm not planning for it. Sadly, in January, this happened. My pay was moved to February. I learned my pay cycles were as unpredictable as my salary. So never plan your expenses with money that you don't have yet in your account.   

- If you’re self-employed or are paid on commissions, then you know very well that it can be a nightmare to manage your money with variable income. So I had to commit to paying myself a set salary every time I made money. This not only helps me with saving but it gives me more financial stability. Knowing what I have to spend every month helps significantly with budgeting.

- Living on a variable income is stressful if you’re living in the dark about where you money is going. The only way I'm able to manage my finances effectively is through a budget. A budget offers some predictability to my unpredictable earnings. It also helps me to take a little of the sting out of those low months and establishes a foundation for better money management. 

- The thing about a variable income is that it’s just that: Variable.You can’t count on getting any set amount. So I live as if I only have the monthly amount that I've budgeted for. I manage my finances by taking care of what's important first. This was hard, and I shared about it here. Now it’s become second-nature to only spend the set amounts in my budget. I've lowered my expenses and normalized my bills so that I have the same expenses every month. And when I have excess money, I just put it away and not spend it on mindless things. 

-Finding money when I need it isn’t a guarantee unless I have planned for just that occurrence. Variable income can make some things feel urgent and others not important at all. I've learned to stay focused on what’s important in the present as well as in the future and then make financial decisions accordingly. This includes saving for periodic expenses, setting savings aside and getting to the point where I can be months ahead of my income. This help ease the challenging months.

- In addition to my cheque accountI have a holding account where I save money until I'm ready to use it. I put all the extra money that I've made in that account. Then on the 20th of every month, I transfer the amount I need from this account to my cheque account. I then pay all the essentials. Then I keep what’s left over in the cheque account for direct debits. Having this umbrella fund available always covers me when it rains and I have a lower month than usual.

Just because you are a freelancer or self-employed, it doesn't mean you have to be a "starving artist" so to speak. Living on a variable income can be difficult, but it’s doable. You have to lean towards frugality to make your money work on a variable income, but it’s a skill that’ll stay with you for life.