How to budget and manage your income when you rely completely on commission.

We all want to be financially responsible and self-reliant. That can get tricky when we work commission-only jobs, like certain insurance sales. As a preneed insurance agent, I faced a lot of budgeting challenges because my income was so irregular. It became difficult to schedule and balance our bills when our paychecks weren’t predictable. My family relied on my commission for day-to-day expenses, and though I was making a good living, it always felt like we were living paycheck to paycheck simply because we couldn’t plan or pay ahead. Here are some things I learned over time.

Pay Taxes Quarterly

The first year I worked in preneed insurance, I was astonished when tax season came at how much I owed on my commission. Of course, taxes were due right after we had gone on a family vacation that depleted our savings account. At the time, it seemed like a great idea to go to Disneyworld, because we had this expendable income for the first time. But the amount of taxes we owed was incredible.

My advice: Pay taxes quarterly to avoid the burden all at once. In smaller increments, the tax bill doesn’t seem so painful. In fact, my wife and I opened an additional savings account with our credit union, and we use it exclusively to set aside the 25-35% of income that will become taxes every quarter. We usually have a bit left over that we funnel back into our checking account once taxes have been paid.

Save More than You Think

When I receive a paycheck, we automatically set aside 25% or each check and place that amount in savings. Our savings account has come in handy on numerous occasions when my sales have gone down for one reason or another. Savings helps us fill in the gaps and prevents us from overspending when times are good. I think most people underestimate how much of their paycheck should be saved for future expenses—make this a priority and take out this money BEFORE you pay your other bills and expenses.

Regular Planning Meetings

My budget only gets out of control when I lose track of my spending. My money management is successful now because I sat down and calculated my current cash flow patterns. We use pretty simple spreadsheet software to track our spending and project our expected expenses. This is actually very motivating for me as a final expense insurance agent as well, because I have a clear picture for how much I need to make each month, based on our regular bills and our projected expenses.

Create a Plan B

I have found it very helpful to create two budgets: one for our regular average spending, and one that cuts all the fat for months when my income was lower than usual. Doing this hypothetically helped us see what our no-frills budget could look like, if we ever needed to be careful for a time. Of course, that time has come over and over again. This secondary budget plan has reduced stressed and helped us prioritize spending on several occasions when my commission hasn’t been what I aimed for.