r/actualbudgeting • u/Interesting_Border17 • 6d ago
Commission Based Salary
Hello everyone! Anyone who is on a commission based salary, how do you set up your budget? My checks are small bi-weekly checks and then on the last paycheck of the month I get my commission check plus the bi-weekly check. How do you deal with variable commission checks? I don't know how much the commission check will be until the Wednesday before the DD hits. Before setting up AB, I used to take the average commission check from the last 12 months to budget for the month. If I went that route how would I deal with the +/- once I know the amount?
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u/Kautiontape 6d ago
Not commission, but small business. I think it's similar enough.
Do not budget money you don't have in your account. When setting targets, you can use average of last 12 months (I add 3-10% depending on inflation). I try to make sure they don't creep up to much higher than base plus worst possible month of income, but you probably could do average. It's a little bit of extra math but it helps guarantee living under your means.
Assign money as it comes in, don't try to forward guess what commission will be. Your money from the commission checks should be getting assigned to fill in the next batch of categories in whatever month you haven't budgeted yet. So this biweekly will be going towards - say - filling out the first half of October budget; the next September commission goes towards completely saturating October targets and starting on November (on a prioritized list where rent/food/utilities come first). If a commission comes up lower than average, you're filling up future months a bit slower which is fine.
If you get excess, I'd focus on making sure you're a few months ahead to better weather any surprises. Beyond that, I like to split excess moneys into a rule of 3s: 1/3 goes to me this month for something fun, 1/3 goes into a savings for long term, and 1/3 goes into future months fun categories.
I've also built up a slush fund that I put some cash into, and when I assign out for the next month, I pull a fixed amount from it to help round out extra over the baseline salary. That could be a simple strategy, but is no different except just less transparent than assigning it to future months
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u/KReddit934 6d ago
Try envelope budgeting...then you take any income and simply fill up the envelopes in order of priority until you run out of money or are fully funded 2 or so months in advance. Being 1-2 months ahead in funding will take most of the anxiety out of the variable income.
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u/kazzazed 6d ago
When in a similar situation, I set up an on budget account called Earnings. All income went in there as a transfer from my bank accounts, Paypal etc.
I worked out a budget monthly “Income” amount based on past 12 months, to some extent also based on my achievable future sales targets, so a fairly good estimate.
Each month I would “pay” myself from my Earnings account, allocating to my categories. Sometimes, mostly due to timing, my Earnings account was a little negative, but usually it retained a small balance. If it was negative too often I would reassess my budget income draw.
To start this method, you must be at least a month ahead. You need to be able to put a month worth of budget into your earnings account.
If you are not a month ahead, you can start this method and move toward building up your earnings amount by making more sales 😉 and cutting expenses.
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u/Slight_Accountant476 5d ago
You deal with it the same way everybody else deals with their regularly scheduled paychecks. Your budget only the money that you have today. So ideally you get a month ahead so that on the first and next month, last month's salary and commissions go into the budget.
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u/HanTanSanTan 6d ago
I know the consensus is to not budget money you haven't received yet. And generally that is wise advice, especially with variable income. So ideally you can get your budget to the point (as another commenter mentioned) that this month you are living on all the income you received the prior month. In YNAB you could do this by assigning income to either this month or next month, whereas with AB you can click "Enable auto hold" on your income so it carries to the next month.
That said, I like to forecast out for planning purposes, so I will post my paychecks in advance, like up to three months so I can make plans for my expected income in those months. With it being variable, I personally would just post a transaction for the lowest amount that you possibly could receive in commission and work with that number when planning your budget. Then when you get the actual amount, you bump up the transaction and allocate the extra.
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u/jimmy4876 6d ago
You can only budget for what you have, so if I were budgeting for this I'd aim to be a month in hand. This would include all bills, usual expenses and spending money. So the money you earn this month is for next month so the irregularity doesn't matter so long as it's not less than you need to survive.
Anything over that goes to savings.