Creating an effective spending plan with variable income


I have several Money for Life Coaching clients that are independent contractors. This often means that their income is variable and can often be inconsistent as well. Despite the common misconceptions, you can still build an effective spending plan even with variable income, and you can also plan ahead for the months where you may not have income coming in.

The key to building an effective spending plan is planning ahead for the months where there may be breaks in income, or lower income. Included in your spending plan should be an allocation to an envelope where you are setting aside a portion of your monthly income for future use. You can combine this with your emergency fund (which should have a funding goal equal to at least 90-day expenses), or you can separate it into an income holding envelope – whichever works best for you.

You will also want to ensure that you are funding your periodic envelopes every month as well, so that you have money set aside for those spending needs before any expenses are incurred. This will put you in a better position to handle auto repairs, home maintenance, vacations, etc. regardless of your income level at the time the money is needed.

Managing your money before you spend it and planning ahead for future expenses are really the keys to making the envelope budgeting system work for you. Planning ahead for changes in income is also critical to having an effective spending plan that will help you to build wealth and improve your financial position.