Author Topic: Budgeting on a commission only job  (Read 581 times)

AlotToLearn

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Budgeting on a commission only job
« on: May 28, 2019, 04:42:00 PM »
Looking for insight to those who are/have been in high earning sales/commission jobs. How do you budget? Do you base your living expenses on a certain number relative to the "good months", and how much do you set aside for an emergency fund.

FiguringItOut

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Re: Budgeting on a commission only job
« Reply #1 on: May 29, 2019, 08:03:09 AM »
I haven't worked on commission, so take my advise with a grain of salt. 
But, if I had variable income, I'd determine what my minimum living expenses are and set that as a baseline.  I'd like to have at least that amount, preferably 3x of that amount, saved up as buffer.
Then I'd budget that minimum every month regardless of what my actual income is that month.  Any extra would go into the savings as additional buffer/emergency fund.  After few months of that, assuming couple good/decent months, I'd have a large buffer and allow for extra things in my budget.  The goal would be to always have enough set aside to cover very lean months at least to a minimum living expenses.
Doing this, over time it is easy to see what overall spending level is and if the existing buffer is sufficient to cover all my needs. 
I would think that the best way for me to accomplish this would be to have two bank accounts.  One for direct deposit of all income, and one where I would transfer my monthly (bi-weekly) expenses and pay all my bills from and use for cash withdrawals, etc.  The first account would potentially accumulate all $ earned that are over the budget, and the second account would be operating at or near zero balance by the end of the month or every two weeks.  Then I would 'refill' the second account, rinse-repeat.
If I wanted to invest any of the accumulated $s, I would take that out of the fist account.  I like to keep one checking account only for my monthly expenses and spendings and I have other accounts where I keep my emergency fund.
I hope this helps.




reeshau

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Re: Budgeting on a commission only job
« Reply #2 on: May 29, 2019, 09:57:39 AM »
Also not on a commission job, but pitching in...

Dave Ramsey's The Total Money Makeover includes worksheets for irregular income planning.  (he was in real estate when he first started developing his method)  As I look now, those worksheets are actually visible in the Amazon look inside preview, so you can take a look before you bought it or bothered to go to the library to check it out.  You could probably also search YouTube for segments from his show for a walkthrough on this, as it comes up often.

ReadySetMillionaire

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Re: Budgeting on a commission only job
« Reply #3 on: May 29, 2019, 10:42:50 AM »
I am not on commissions, but I am self-employed and thus have an extremely variable income. I've had months of $30,000 and I've had months where I did not send out invoices (and thus had zero income).

I think you may be looking at this somewhat backwards -- a budget should not be "how much can I spend this month." If you think, "Oh, I made X this month, therefore I can spend Y this month," then you are thinking about it the wrong way.

To me, a budget means just knowing exactly what your monthly expenses are. This should be an average you come up with by looking at your financial data for about the last 12 months. How much do you spend on your mortgage? Gas? Electric? Cars? Fuel? Insurance? Car insurance? Healthcare? Groceries? Etc. You also want to know how much you spend socially/discretionary.

This number absolutely positively should not change whether you have a "good" month or a "bad" month. This number is what it is (and it should be as low as possible), and you should manage your cash flow accordingly.

My wife and I spend about $4,000/month. She nets about $3,000-3,500 a month, which means I need to cover the difference. I do this by transferring money from savings or from my business. We usually keep about $10,000 in an emergency fund so there is never really a sweat regarding moving money around.

But when I have a great month? That goes to paying off various debts or investing. My lifestyle and monthly activity does not really change.

The lone exception here is yes, one day when I got a $16,000 check, I went home for the day. That was nice. And maybe we went out and got a pizza. But I absolutely did not go out and buy a $1,000 TV or anything stupid.

Long story short: a variable income is not a reason to have variable expenses.

AlotToLearn

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Re: Budgeting on a commission only job
« Reply #4 on: May 29, 2019, 12:21:07 PM »
Great advice all, much appreciated.

Freedomin5

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Re: Budgeting on a commission only job
« Reply #5 on: May 30, 2019, 01:56:21 AM »
I AM commission-based and have variable income. I base our budget on my lowest income month. Anything earned above that amount goes into savings and investments.

nereo

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Re: Budgeting on a commission only job
« Reply #6 on: May 30, 2019, 11:37:31 AM »
I think you may be looking at this somewhat backwards -- a budget should not be "how much can I spend this month." If you think, "Oh, I made X this month, therefore I can spend Y this month," then you are thinking about it the wrong way.

+1.
Our income can vary 3x from quarter-to-quarter (I don't even compare months, as we can have $0 months and $8k months).
Here's what I would advise:
  • Determine your absolute baseline expenses (e.g. housing, insurance, food, transportation
  • Make sure you have a buffer of several months at this baseline level*
  • During good months, sock most of it away and address maintenance issues / upcoming expenses (if you can)

The key is to be proactive and not reactionary with your spending.  You want to know the next several months worth of expenses (both base and discretionary) are covered, instead of scrambling around on 'down' months trying to find the money to pay for X.  After a few months of this the ups-and-downs of variable income cease to matter, and you are (hopefully) left with a situation where, on an annual basis, you are spending considerably less than you are bringing in, and you are constantly increasing your 'stache.

* how much of a buffer depends greatly on what your minimum monthly income is (i.e. how variable is your income) and what your minimum monthly spending tends to be.  If your worst month is roughly equal to your monthly spending you don't need much of a buffer, but if you have months with zero income, you might want 6+ months as a buffer.

Hargrove

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Re: Budgeting on a commission only job
« Reply #7 on: June 01, 2019, 02:58:12 PM »
Commission, monthly.

I take the check (after 401k deductions) and pay every bill. I moved all the ones I could move to being due around the 25th, so the new bill is up by the time I'm paid on the 5th, when I pay everything.

Expenses go on credit cards with the best appropriate rebates (3% groceries Amex, 5% gas Discover else 3% gas Bank of America). If you have a family, 6% groceries Amex with the better blue
card that has an annual fee.

The emergency fund IS the credit card - if you don't pay it off 100%, which should be rare, you pay a few bucks once to let your money otherwise grow in stocks.  Save the money left over at the end of the month.

If two months pass where I'm carrying balances, I immediately switch to "I am in a debt emergency" mode and fix it. You can get extra mileage for your saving if you put saving right after bill paying, but I moved saving down to the last step when I relaxed a little and was already in a good rhythm.

The ONLY thing I would NEED cash for in UNDER 3 days is car repairs with a local mechanic - if there's any argument for having an emergency fund beyond the credit cards, the most I could imagine needing is $300-$800.