Being paid on a commission basis means you and your sweetie might be rolling in dough one month and barely making ends meet the next. Get rid of that uncertainty by budgeting both your income and your expenses on a monthly basis. Just as it takes two to tango, it also takes two of you to successfully create and stick to a budget that is based on commissions.
Types of Commissions
Two factors affect your budgeting -- how often you get paid, and how much. Commission programs vary. You might get paid only once a month, on every sale or on a quarterly basis. Some commission programs also pay a draw. This is money paid before you earn commissions. When you earn enough in commissions over the draw, you're paid the additional money. For example, if your draw is $3,000, you'd have to earn $3,000 before you get any additional commission payments.
Figuring Your Income
No matter how often you get paid, or in what form, you can get a rough idea of how much you might earn in commissions in future months by reviewing what you've earned in the past. The easiest way to do this is to add up the commissions you've been paid over the last year and divide the total by 12 to get an estimated monthly commission. Use this figure to help you draw up a budget. Just be sure to account for the timing of your actual payments. If you are paid only once a quarter, for example, you must make that money last for three months instead of one.
If the time of year is a big factor in how much you earn in commissions -- for example, if you earn 35 percent of your yearly income during the holiday months of November and December -- consider that in your budgeting. It's tempting to think you're flush with cash during these periods. If you don't stretch your money out properly, however, you might find yourself paying your bills with credit cards when March rolls around. Again, budget your money based on your average monthly income over the course of a year -- not on what you happened to make on a particular commission check.
Tally Up Monthly Expenses
Drag out that checkbook or go online, and review what your regular monthly expenses are such as rent or mortgage, utilities, insurance payments, car payments, credit card payments, club or HOA dues, student loan payments and so forth. For payments that fluctuate from month to month, add up a year's worth and divide by 12 to get an average. Keep in mind that if you have an account on a contract basis, such as a gym membership, you have to keep paying it until the contract expires, so include that as well.
Review Expenses Paid Other than Monthly
Some expenses are unexpected, such as dental and medical expenses and car repairs, but you should still include them in your budget. Other expenses such as car insurance or school tuition are paid quarterly or once a semester. Look at what you've spent in these categories over the course of a year. Add up the yearly totals and divide by 12. If you didn't have much in one category in the past, say car repairs, reasonably estimate what you'll spend in the upcoming year and budget for it by setting aside money each month.
Discretionary Expenses -- Well Sort Of
This is where the money has a tendency to disappear each month. You have to put food on the table and clothes on your back, but are you buying beef tenderloin when you should be on a hamburger budget? Instead of looking at what you've spent in the past on items you need to survive, set a budget for the future based on your average monthly commission income. Other discretionary expenses include entertainment, travel, restaurant meals, magazines, books and recreational activities. Since these are not necessary for survival, allocate money to these last, after you have budgeted for your other expenses. It's also a good idea to set aside money for savings.
Income and Outgo
Now you know what's coming in each month and what's going out. If the outgo is more than the income, you have a problem. The solution is to cut back your expenses or increase your commission earnings. It makes sense to cut expenses as far back as possible for a few months to stockpile cash. That way, if your commissions are less than anticipated, or you have an emergency, it won't wreck your well-planned budget.
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