The "pay yourself a salary" method
A normal budget assumes the same paycheck every month. Commission, 1099 and bonus income don't work like that: one month is huge, the next is thin. The fix is to stop budgeting off what came in this month and pay yourself a steady salary instead.
- Every commission deposit goes into a separate income buffer account.
- On the same day each month, move a fixed salary from the buffer to your checking account.
- Budget only off that salary. Big months refill the buffer; slow months draw it down.
Worked example
You expect $90,000 this year, set aside 25% for taxes, and use a 90% safety margin:
- After tax: $90,000 × 75% = $67,500
- Salary: $67,500 × 90% ÷ 12 = $5,062.50 a month
- 3-month buffer target: $15,187.50. With $6,000 saved, you're $9,187.50 short.
- The 10% margin adds about $562.50 a month to the buffer, so it fills in roughly 16 months even if you never beat your forecast.
Your $6,000 buffer already covers about 1.6 months of a $3,800 bare-bones month, which is the number that matters if income dries up.
Picking your numbers
- Expected income: use a conservative figure. Last year's total, or your base plus the commission you'd earn at about 80% of quota, works well.
- Safety margin: 85–90% is common. The lower it is, the faster the buffer grows and the safer a bad quarter is.
- Tax set-aside: if you're a W-2 rep and taxes are withheld from every check, enter 0 and use your take-home income. Self-employed agents and 1099 contractors often set aside 25–30%.
- Buffer size: 3 months is a good start. If your income swings hard or deals take months to close, aim for 6.
Until the buffer is full
If the buffer is short and a slow month hits, pay yourself your bare-bones number instead of the full salary that month. Once the buffer is full, anything above your salary can go to savings, debt or investing.
FAQ
How do you budget with irregular commission income?
Put every deposit into a separate buffer account, pay yourself the same salary from it each month, and budget only off that salary. Set the salary at about 85–90% of your expected after-tax income so the buffer keeps growing.
How big should my income buffer be?
Three months of your salary is a solid start. If your income is very seasonal or your deals take a long time to close, six months is safer.
What income number should I plan with?
A conservative one. Last year's total, or your base plus commission at around 80% of quota, is usually safer than your target or OTE.
How much should I set aside for taxes on commission?
If you're a W-2 employee, taxes are already withheld, so enter 0 and use your take-home pay. 1099 contractors and real estate agents commonly set aside 25–30%. A tax professional can give you a precise number.