If your income varies, you already know the average is useless — you have never once been paid the average. What you need instead is a number you can make promises against. That number is the income floor, and it takes about ten minutes to work out.
The definition
The word doing the work is “surprised”. Not impossible — a floor is not a guarantee, and you will occasionally go under it. Surprised, in the sense that you would look for an explanation: a client who vanished, an illness, a season that failed.
That is a deliberately conservative bar, because of what the floor is used for. Fixed commitments are sized against it, and a fixed commitment you cannot meet in a bad month is not a budgeting inconvenience, it is a debt.
How to calculate it
With twelve months of history
- List each month’s total income.
- Remove the two highest months — these are the ones that make you optimistic.
- Take the lowest of the remaining ten.
- Round down to something memorable.
Dropping the top two is not arbitrary. Variable incomes tend to be right-skewed: a few large months pull the average up while the typical month sits well below it. Removing the peaks stops those months from influencing a number that exists specifically to describe the bottom of the range.
| Month | Income | |
|---|---|---|
| Jan | Rs 140,000 | |
| Feb | Rs 62,000 | |
| Mar | Rs 98,000 | |
| Apr | Rs 210,000 | dropped — highest |
| May | Rs 71,000 | |
| Jun | Rs 55,000 | lowest remaining → floor |
With those six months you would drop April, and possibly January, and land on a floor of Rs 55,000–60,000 — against an average of Rs 106,000. The distance between those two numbers is the whole reason this exercise exists.
With less history
Use your lowest month, budget against it, and revisit when you have a year. It will feel too conservative. It is the correct response to not knowing yet.
Three ways to get it wrong
Using gross instead of net
If nobody withholds tax for you, the money that arrives is not all yours. Calculate the floor on what remains after setting tax aside, or you will build a life on money you owe someone else.
Counting one-off money
A large one-time project, a gift, money from selling something. These inflate a month without telling you anything about the next one. Exclude them before you start — especially if one of them happens to fall in what would otherwise be your lowest month, where it will raise your floor on the strength of an event that will not repeat.
Adjusting it upward after a good run
Three strong months in a row feel like a new normal and almost never are. A floor should move slowly and, ideally, only after a full year of data suggests the underlying level has genuinely shifted — a new retainer, a permanent rate rise, a second income in the household.
What the floor is for
Exactly one thing: deciding what you can commit to. Rent, instalments, fees, insurance, any subscription with a cancellation cost — everything with a due date fits inside the floor, or it does not get committed to.
Everything else is funded from what actually arrives, in the month it arrives. That split — commitments against the floor, discretion against reality — is the entire method, and the floor is the number that makes it possible to state.
Frequently asked questions
What is an income floor?
The monthly income you would be surprised to fall below, derived from your own history. It sits below your median and well below your average.
How do I calculate my income floor?
Take twelve months of income, drop the highest two, and take the lowest of what remains. With six months, use the lowest month you have.
Is the income floor the same as my minimum expenses?
No. The floor is about income; minimum expenses are about outgoings. If your minimum expenses exceed your floor, that is the finding — and it is a serious one.
How often should I recalculate it?
Twice a year. A floor you update after every good month is an average with extra steps.
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