Income
Variable Income: Definition & Example
What Is Variable Income?
Variable income is income that changes from pay period to pay period, such as commissions, tips, overtime, bonuses, seasonal work, or freelance earnings.
What does variable income mean?
Many workers have a base amount plus a variable part. Servers earn tips, salespeople earn commission, and hourly workers earn overtime. Others, such as freelancers and seasonal workers, have income that is almost entirely variable.
Reviewers usually average variable income over a longer period, often 12 to 24 months, so a single strong or weak month does not skew the result. They also look at the trend: stable or rising variable income is treated differently from income that is falling.
Budgeting on variable income is easier when the household plans around its lower months rather than its average.
Variable income example
A car salesman earns a $2,000 monthly base plus commission. Over the last 12 months, his total monthly pay ranged from $3,100 to $7,800. The average is $5,200, and the lowest three months averaged $3,500. A cautious landlord might look at both numbers.
Related terms
- Income StabilityIncome stability describes how consistent a person’s income has been over time, based on how regularly it arrives and how much the amounts vary.
- Gig IncomeGig income is money earned from short-term, task-based work, often through apps such as rideshare, delivery, or freelance marketplaces, rather than from a single employer.
- Annualized IncomeAnnualized income is an estimate of a full year’s income calculated from a shorter period, such as projecting 12 months of earnings from a few pay periods or months of deposits.
- Average Daily BalanceAverage daily balance is the average amount of money in an account across every day of a period, calculated by adding each day’s ending balance and dividing by the number of days.
- Recurring DepositsRecurring deposits are payments that land in a bank account on a regular, repeating pattern, such as a paycheck every two weeks or a monthly benefit, and are commonly treated as signs of ongoing income.
