How do I Plan When Most of My Salary is Commission
Planning for an irregular salary is a hard thing to do. You don’t know which months will be good and which months will be bad.
But you do know you’re going to get both.
So how do you plan knowing things are going to be wonky? Well let’s first break things down into two categories: commission + salary (slightly more regularity) and just plain commission.
Salary + Commission
If you fall into this category then congratulations, you have more consistency than your all-commission counterparts. That doesn’t mean all your problems are gone, but at least some of them are.
The first step in planning for a salary + commission pay schedule is to understand all of your expenses. Rent, food, debt, savings, health, insurance, utilities, etc. etc.. Lay it all out. From there, plan for your bi-weekly, monthly, or quarterly salary to go straight towards these fixed expenses. Since these are your required payments that have serious consequences if gone unpaid, we do not want to leave them up to chance (in case that bad month sales wise comes around).
This leaves your commission. Plan for these funds to go towards your discretionary (non-required) expenses. This includes things like clothing, travel, entertainment, extra savings, extra debt payments, etc.. Better to not buy clothes for a month than not be able to pay rent.
Also, it doesn’t hurt to have a little bit more in your emergency fund than most individuals.
Commission Only
For those who are commission only, things get a little bit tricky. First off, props to you for being able to live in such flux income wise. To make things a little bit less stressful, let’s plan accordingly.
What you’ll want to do first is set up a bank account that is separate from your normal checking and savings account. This will be where all your commission will go into. After that has been set-up, you essentially want to pay yourself a set salary from this account each month. If it's a good month commission wise, you still pay the set salary. If it's a bad month commission wise, you still pay the set salary.
The hope is that this evens everything out over the long-run, so that you have enough to pay for all your expenses every month, whether they be good sales months or bad ones.
Once again, beefing up that emergency fund isn’t the worst thing in the world.
