While budgeting for a fluctuating income isn’t rocket science, certain strategies can improve your chance of success immeasurably. Through trial and error, I’ve found a process that helps take the sting out of the low months while also paving the way for optimal money management.

Here are the rules I follow when budgeting our family expenses on a wildly variable income:

Step 1: Know your baseline

First things first: Before you can create a budget on a fluctuating income, you need to know your baseline – a.k.a. your bare-bones budget. Above all else, you need to know the bare minimum expenses you need to cover on a monthly basis.

For most people, this budget is comprised of expenses related to the absolute essentials – housing (rent or mortgage), utility bills, transportation, groceries, and childcare.

When following this plan, it’s crucial to know what you absolutely need to earn to pay your bills and get by. Fortunately, this step won’t take much work or effort on your part. To create your bare-bones budget, just break out a pen and paper and create a list of your essential, ongoing monthly expenses.

While fixed expenses like your rent or mortgage are easy to figure, you may need to estimate ongoing expenses that fluctuate. Think utility bills, gas( fuel) for your commute, and groceries. And don’t forget to include savings, investments, and debt repayments in your bare-bones budget. Even though these bills may not be essential to your survival, they’re still important!

Step 2: Calculate monthly discretionary expenses

Once you’ve created your bare-bones budget, you need to come up with a list that covers everything else. In your list of discretionary expenses, you should account for things like your cable television bill, any money you regularly spend on entertainment, cash for sports or hobbies, and money you spend dining out.

If you’re struggling to find your average spending on unnecessary stuff, break out your last few months’ of bank statements and credit card bills to take a look. Unfortunately, this step can be rather painful.

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Sometimes, taking a cold, hard look at spending from previous month’s expenses is all it takes to discover huge, painful leaks in your spending. If you don’t like what you see, now is the perfect time to put yourself on spending diet and whittle those numbers down.

Step 3: Build your emergency fund

If you already have some savings, you’re way ahead of the game. Most experts suggest keeping three to six months of expenses on hand, which will work in this case. Unfortunately, building savings when you have none can be difficult.

To come up with a plan, consider automatically socking away a certain percentage of your paycheck each week or month, selling stuff you don’t need, and allocating all “found money” (like a tax refund) straight into your savings account.

You’ll understand why this is so important in a minute, but suffice it to say that the key to living stress-free on a fluctuating income is having ample savings. Bad months will come along, and when they do, your savings will be there to fill in the gaps and keep you on track.

Step 4: Live on last month’s income

Once you’ve created your bare-bones budget and added up your unnecessary expenses, you’ll know exactly how much money you need to make it through the month without dipping into savings. So, on the first of the next month that comes along, deposit that amount of money into your regular checking account – and nothing else.

From now on, you’ll deposit all of your income into whatever long-term or short-term savings account suits your fancy. (If you don’t have a savings account, now is the time to open one!)

This whole “living on last month’s income” thing is what’s commonly referred to as a “zero-sum budget.” The idea is this: By living off last month’s income, you’re budgeting your month based on realistic figures – not income projections or wishful thinking.