Is budgeting for unpredictable income possible?
Unpredictable Income Budgets
TDS Reader Solutions
Is Budgeting for Unpredictable Income Possible?
My husband just entered into a sales position working on straight commission. We went into this career choice knowing that the first year or so would be rough on us financially, especially since I am a stay-at-home mom. We are not the best at staying on a budget, but have cut down on a lot of our expenses. We turned our basement into a 1 bedroom apt. which ends up paying half our mortgage payment. We have no credit cards and only 1 car payment. We still end up short most months, even when it seems he is doing well. So my question is; how do you make a budget for unpredictable income? Some months he does great and we think we are saving it for a rainy day, but it never works out that way. Help! We don't want to jump into the credit pool!
Build Up A Month in Advance
I know how you feel. My husband and I lived on commission only (very little commission, actually) for two years. First, figure out what you must pay - rent/mortgage, utilities (try to get on budget payments to make this part easier), car payment, insurance, etc. Next, resign yourself to living VERY economically for about a month while you get on top of things. Now, whatever money comes in put it all towards the required payments. Spend next to nothing on food, entertainment, dining, clothing, etc. We call these unnecessary items in my household, but I'm aware you don't plan on starving. Just make it really cheap for the first month. Remember this is just for the first month. Anyone can be really frugal for 30 days.
Once your husband has brought in whatever your required amount is, for the rest of that first month continue spend as little as you possibly can. Bank whatever you don't spend for the rest of the month, preferably in a separate account for "unnecessaries." The second month gets a lot nicer, assuming the first month wasn't a bad one for your husband's paycheck. If it was, try the above again for a month. Otherwise, you now have a bit of extra money in your "unnecessary" fund to start the month with. Again, once you've paid the necessary stuff, start adding the other money that comes in to your "unnecessary" fund. At the end of the second month, buy enough food to last you a week or two or until you know your husband is going to get paid again. Put whatever's left in the unnecessary fund into a savings account. Actually, you'll probably want to leave $50 or so in there just for good measure. That way you won't feel like you're cheating your savings account if you must buy something before you get money in the unnecessary fund again. Repeat the second month's plan until you have a month's worth of necessary expenses in your savings account. Now you can add a payment to your savings account every month - just $100 or so will add up. If you can't make that payment, then you just can't. If you have to dip into that savings account, well, that's what it's there for. But don't make a habit of it or that cushion won't be there anymore! Basically, I think of it as putting away the money that I know I can spend on unnecessaries before I have to spend it. That way, even if you've planned to eat filet mignon and if you can tell that the next month is going to be bad for your income, you can change your menu to a more frugal one.
It takes some work the second or third month, and a lot of work the first month. Go to the library to rent movies or borrow books. Work on that project you started last year but never quite got around to finishing. Eat lots of beans and rice and macaroni & cheese. Actually, it's a good experiment for anyone. Just try to live on as little as possible for a month. Trust me, it is worth it to know that you have enough money in the bank to cover you in case you have a really awful month.
Budget Today and Cut Long Run
I have been in the same situation. You have taken a good start by getting an extra income to help pay your mortgage. Having income producing property has saved my budget several times. But now you need to work on the other parts of your budget.
I use something called a reverse budget. Instead of planning how you will spend your money, a reverse budget looks at your spending habits. The idea is to then modify your spending habits to fit your income. What I do is to write down all the house-related expenses. (i.e., mortgage, insurance, utilities, etc.) Then I write down the car and transportation related expenses. Then add in a reasonable amount for groceries. I add these expenses up. This is the amount of my necessary expenses. If I did nothing but work and sit around the house, this is what it would cost. Everything else is a discretionary expense.
Now take a two pronged attack at your spending habits. First cut back your discretionary expenses. For instance, no eating out, pack your own lunch, no $40 haircuts and cut out the Saturday afternoon shopping spree. At the same time, work to cut down your necessary expenses. For instance, get a better deal on car and house insurance, remove the PMI from your mortgage if you can, get a cheaper phone service, etc. Basically you end up looking at everything you spend money on and find a less expensive alternative. This requires the cooperation of everyone in the family and will require a lot of soul searching. But the rewards and the financial security are worth it.
Pay Bills Early
My husband also has an unstable income and I've been a stay-at-home mom. The budgeting part is really difficult. I found that if you know approximately what you will make in a year you can figure pretty accurately. For instance if he makes $72,000 you know you have $6,000 a month to work with. In the months that he brings in more than that, you put away the rest for following months. I've been able to do this by paying my bills ahead. If I have a car payment for $400, and I have an extra $1,000 that month, I make 2 car payments ahead. I put them in envelopes with the date they are due in the corner where I will place the stamp. Once I'm a little ahead on one bill I start working on others. Eventually I was able to get about 3 months ahead and then the lack of money one month no longer affected my budget and the abundance another month was not a temptation since it was used to pay bills immediately. The one other trick that worked for me was putting at least 5 to 10 percent of every check in an emergency account until I had enough funds to cover myself for three months. I know it seems tough to do this now, but if you can cut back for a while you will have the security of an emergency fund, and you'll be several months ahead in your payments.
If your spending has put you in debt, start taking the steps to financial freedom today!
Hard But Necessary
The only way to handle keeping your life in order when you live on commissions is to faithfully work with a budget. Seems like she's got a good head start by having no on-going credit. To get her family set up she needs to do the following:
Go back and find every receipt you can. Get in the habit of asking for one for everything. Then for 1 - 3 months, depending on how regular your expenses are, log [either in your computer or on ledger sheets] every single penny you spend, no matter how trivial, into appropriate categories, like:
- Auto - Gas
- Auto - Repairs
- >Clothing - Kids
- Clothing - Uniforms
- Cleaning/ Laundry/ Dry-cleaning
- School - Training materials
- School - Tuition
- Utilities - Electricity
- Utilities - Gas
- Utilities - Telephone
- area where you are overspending
- how much you really need to set aside for each category.
- Learn more about variable income budgeting and how you can make it work for you.
- Do you play the lottery? Find out what else you could be doing with that money that could actually benefit you.
- Create a budget in just a few minutes with the Quick Budget Worksheet from Simpleplanning.com.
- Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
I have about 15 other categories that are recurring in my budget. Also try to add those categories you don't pay for regularly, like Car Insurance, Real Estate Taxes, Income Taxes, and Gifts. For each of these you are trying to figure out how much you spend in a year. Then enter 1/12th of that amount each month.
After you have done this a few months in a row you can then begin finding your average expenses for each item. If you're working on a computer, you would add up the total amount spent over say 4 months, divide by 4, and that's what its going to cost you, on average, to keep your family going for that category.
Once you have all of this accumulated you will then know two things:
This information is invaluable, since we don't often know how much we really spend for things. Also good for teaching your kids why they can't have the newest widget.
Next step is when P's husband gets paid, cash the check (all of it) and put the budgeted amount for each category for the time period until you reasonably expect to get another check into its own separate envelope. The rest of the money goes into an emergency only account that is placed in such a way so that it's harder to get into. No ATM to access and you have to go to the bank to take out it or locked in a safe at work, whatever. And no, emergencies are not you "forgot" to budget for a birthday party or you want a new dress or sofa or your husband found a great deal on jet skis. True emergencies like someone's dying or you're about to get evicted.
Only spend as much as is in your envelope - no more. It might mean you eat beans for 3 days in a row. Once our family had a slice of ham, eggs and Ramen noodles for a week. But I guarantee once you get into the habit of limiting yourself and logging your expenses, you will get your budget under control and you'll even start saving. Just remember to add a tithe envelope and a savings envelope to the group. You can do it. I dropped my debt from $60,000 to $6,000 using this very same method!
Wow, this sounds familiar. I am a single woman with a mortgage. I rented a room out in my house to a college student for additional income it paid a little more than half my mortgage payment. I work as a clerical temp, my income fluctuates from job to job and some times it's two or more weeks between assignments. Some of the things I did to budget is not to look at how much you are expecting to make, but how much money you need to make to pay the monthly bills you have.
Say the bills you have to pay at the end of the month equal $2000. Pay those first. I also go shopping once a month after the bills are paid. This way I know how much money I have to spend at the grocery store. Stock your pantry with as much non-perishables as you can if on sale. It will help you get through the months where money is really tight. I have about 5 months supply of groceries in my pantry most of the time. If you have additional money put it to the principal of your car loan. Reduce your cost of living as much as possible.
Also, since you are a stay at home mom have you ever thought of childcare as an additional form of income? You are at home with your kids already. If you could just watch one additional child before and after school while the parents are at work you could add some income each month. Just because you choose to stay at home with your children does not mean you cannot make money.
For the reader who needs help with a budget, I say go to the web page crown.org. At this web page is an on line budget for us to use. Larry Burkett was one of the best at this. He wrote many books. One is called Debt Free Living. In it he gave what is needed to live this way. If you follow his advice you will live debt free.
Fluctuating Income Advice
The best information on budgeting, especially when your income fluctuates weekly, semiweekly, or monthly is from Mary Hunt of Cheapskate Monthly Magazine. She has a website at: debtproofliving.com. She also has written several books. One called The Complete Cheapskate is wonderful.
For income fluctuation, Mary recommends to pay yourself with your own, regular paycheck. Figure out your monthly expenses and use that figure to pay yourself. Any extra goes in savings for the lean months. Please get her book for more detailed explanations. I have been debt free for 5 years with her help and encouragement!
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