Yes, You Can Budget on a Commission-Based Salary – Here’s How

Yes, You Can Budget on a Commission-Based Salary – Here’s How

The good news:

“A salary plus commission job has the benefit of providing a guaranteed base salary plus the potential for uncapped commission,” says Lori Dietzler, founder and financial planner at Zero Gravity Financial in New York City.

And the not-as-good:

“The biggest challenge with this type of compensation is that monthly income is unpredictable and makes it tough to create a budget,” Deitzler continues.

“In real estate, commissions are not written in stone but are agreed upon between parties,” says Michele Silverman Bedell, owner and principal broker at Silversons Realty in Westchester. “This gives one flexibility on how much they can earn. A challenge is that there is less consistency in how much one earns, which means that one has to be diligent in their budgeting and saving. Also, one has to have a certain personality that can handle uncertainty and risk.”

Your pay structure may vary

One common misconception about earning this type of income is that all base pays are low and commissions are paid higher on the back end to provide more “incentive,” says JoAnne Kao, director of sales at SourceMedia in New York City. This isn’t necessarily true, as the arrangement will depend on the company and industry structure.

“Some jobs give you a draw the first few months to tide you over until you start making sales,” Kao says. “Then you either keep the draw depending on how much you bring in or you ‘pay back’ the draw over time; some are straight commission, some are a combination of both.”

The key is to look for positions that have a base salary where most or all of your fixed living expenses are covered, Dietzler recommends. Find a job where the base salary will pay for your living expenses and keep them as low and predictable as possible. Commission payments can be used for savings by building a buffer for lower income months by funding an emergency fund.

 Don’t forget about taxes

“Ask your employer which tax method they have chosen to apply to commission earnings- either the flat tax rate (25%) or aggregate method (your ordinary income tax rate),” says Dietzler. “Be conservative when planning your budget based on the salary plus commission compensation. Until you have funded your emergency fund, keep your spending in check while you build up your savings buffer in case there are future lower income months. Avoid using your credit cards to pay bills or discretionary spending that you can’t pay off each month.”

Cynthia Fick, a Phoenix-based investment advisor and author of the book, “The Sisterhood of Money: The Art of Creating Wealth from Your Heart, comments that many of the women she’s talked to see “budget as a four-letter word,” but most end up feeling much better after taking a few simple steps to review their spending. The best place to start is to conduct a cash flow analysis by looking at your purchases for the past month and determine if there’s anything you can cut back on.

Keep 2 bank accounts

Though your income may fluctuate, you can take steps to make the most of what you are earning. “Since your monthly income is unpredictable, use two bank accounts to manage your budget,” Dietzler suggests. “Deposit all income into your savings account and each month transfer the minimum amount to cover living expenses into your checking account, where you can set up automated bill payments.”

“Have separate accounts for bills,” agrees Kao. “Checking accounts are free so open as many as you need. Rent below your means because there will be very slow months.”

Automate your living expenses

Dietzler says once you have a few months of living expenses saved to your savings account, set up automated transfers to fund your other goals – e.g. vacations and retirement. The tools You Need a Budget and Mint are both great for managing personal finances and setting up a budget.

Kao seconds the strategy of automating one’s expenses – particularly the basics such as rent/mortgage, utilities, food, transportation, and taxes, if you’re an independent contractor.

Build your wealth

Next, focus on building your wealth with investments by determining a regular amount that is comfortable to set aside on a monthly basis, says Fick. “When you have a good month of commissions, you can add a larger amount to the investment,” she says. A Roth IRA is a great option for tax-free growth.

Though it can be difficult to set up automatic investments into a savings or mutual fund account when your income fluctuates, it is imperative to your financial success, stresses Fick.

Continue to prioritize spending

When it comes to spending – be conservative and prioritize what is necessary and important, says Bedell. She also recommends having a few months of expenses in reserve and limiting the amount of items you charge or put on credit. She also points to systems such as Quicken or QuickBooks to manage bookkeeping and budgeting.

The $ky’s the limit

“Having the opportunity to earn commissions as well as a base salary is perfect for someone who likes to see the fruits of their labor,” Fick says. “In the long run, you can usually make more money if you can handle some momentary fluctuations in income. That is the reward of being more entrepreneurial.”

Set Yourself Up For a Big Promotion In the First 90 Days of Your New Job

Set Yourself Up For a Big Promotion In the First 90 Days of Your New Job

You’ve got your best suit or dress on, your shoes are shined, every last hair is in place (or so you hope), and you’ve got a rollercoaster of excitement and nerves swirling in your stomach. Today’s the day you start your new position.

For the ambitious, no matter where you are on the career ladder, starting at a new company or organization requires pulling out all the stops. And while you may want to go all in immediately, expect there to be a period of transition and a fairly high learning curve.

“It’s important to make a good first impression on everyone that you meet,” says Erika Kauffman, executive vice president and general manager at 5W Public Relations in New York City. “Getting along with your coworkers should happen. Make it a goal to be super friendly to everyone. Ask questions and make a name for yourself — you want others to respect you.”

You’ll also want to learn who’s who — all companies have culture and they have players. It’s your job to learn who they are and act accordingly. While this is not the time to be a wallflower, you can often learn a lot by watching what’s going on around you.

“This is a new environment that needs to be navigated,” says Maxine Attong, a career coach and author of the book “Lead Your Team to Win: Achieve Optimal Performance By Providing a Safe Space for Employees,” who divides her time between the Caribbean and the United States. “Understand who is who just as you did in the playground — the bullies, the informal leaders, the jokers, the whiz kids, and all the other characters. Observe from a position of curiosity and a state of learning without making judgments or assumptions.”

Depending on the size of the company and your position within it, you will want to know the assistants of each of the top executives, says Lorraine Flett, a partner at Zumado Public Relations in San Francisco. Learn who to go to in each key department that’s pertinent to your position.

“Are you a project manager responsible for requisitioning contractors and processing invoices? Then make sure you know the people in finance/accounting,” Flett says. “If you’re responsible for maintaining the company’s website, make sure you know your copywriters, HTML programmers, and graphic designers. Essentially, you should know everyone upon whom you depend to get your job done or whose help you might need in a pinch.”

One of the best things about being new is that it’s expected that you will have a lot of questions. Take advantage of this time. Set goals with your supervisor, understand their priorities, and take notes on how workflow moves through your team and within your company.

“Be thoughtful in directing questions to the right resources,” says Alicia Nash, senior manager on PwC’s marketing and sales team. “So by all means ask your supervisor about their expectations of you, and the goals you should be setting for the short and long term. If you have access to company leadership, do your homework so you’re able to have a more meaningful conversation with them about the company’s strategy and the role you will play. Save the questions about logging into voicemail, ordering business cards, and where’s the best cup of coffee for your peers.”

Within the first three months, you want to ensure that you not only meet the expectations of what’s required of your position, but that you are able to take the initiative and go beyond expectations, says Flett. You want to demonstrate that you are a team player with a can-do attitude, aptitude for learning, and the ability to take on additional tasks.

“In practical terms this can range from understanding the company’s email protocol to being prompt and prepared for meeting with timely follow-up,” she says. “If I were to give one tip for career advancement, it would be to make sure that you are pitch perfect in all your communications.”

One no-no is coming into a new environment and thinking you have all the answers — even if your ideas are creative and people seem receptive.

“Show respect for the status quo by not complaining about the organization or the way that things are done.” Attong says. “Even if you have the solutions to all the problems, ask questions before making changes or put forward a suggestion so that you understand what efforts were made before, why they did not work, and the impact of failed efforts.”

Attong also recommends not comparing your old company to your new one: You left your old job for a reason, and people tend to be disinterested in hearing about how wonderful your former company was. “If you want to bring elements from the previous job to the new, do so in the spirit of improvement so that team members do not feel that they are being compared to a different standard,” she says.

Many companies — whether large or small — offer the opportunity to telecommute. While this may provide more flexibility in the day-to-day and you may only be required to show up at a physical location time and again, new hires aren’t off the hook when it comes to demonstrating the ability to excel.

“Do what you say you will, when you say you will — and just like in a physical office location, over-communicate at the start about what’s on your plate and how you’re planning to prioritize tasks,” says Nash, who telecommutes from her home in Rhode Island. “The little things in the early weeks, especially when you’re virtual, help set the right tone: Dial into conference calls a minute or two early, be accessible through your company’s instant messaging platform, and meet soft deadlines proactively.”

Nash also stresses to not over-rely on email. She recommends picking up the phone, arranging a video chat, and putting 15 minutes on your boss’ calendar to do what you can to accelerate building rapport.

As you move through the first three months, remember the journey that got you hired at the company in the first place. Have confidence in your abilities and believe you are the right person for the job. Your new boss and company brought you on for a reason, and they are looking to you to knock it out of the park. Good luck!