Variable Income Budgeting
Variable Income Budgeting
When I was single, I used to have a budget. I knew how much money I was getting every month, so doing a budget was no problem. I am now a stay at home mom who tries to make a few dollars here and there by doing odd jobs. My husband works by contract so I never know from month to month, even from day to day, how much money he will make. Some months we could have over $4000.00 to work with or just $1200.00. My question is how do you budget your money, when you are not sure how much money you have to work with. Thanks.
Save Extra in Good Months
Carol, there's one suggestion I can help you with. If after one month you have extra money after paying the bills, put it away for next month (just in case you don't get enough the next month, you'll be able to cover the difference). For example, if your income was $4000 one month and your expenses are only $2000, put the rest away until next month. Then the next month you only have $1500 coming in, then you have the $500 you need already put away to cover it. You should always try to have a month or two of expenses put away in savings just in case something happens (this includes people with a fixed-type income as well), like no work, getting hurt, etc.
A Well-Stocked Pantry
We also live with the same situation. What I do is, figure out what our basic needs are each month. If we have a big month, I try to put money aside for "basics" as far ahead as I can. I also set some aside for bulk grocery shopping at a warehouse, or buyout store. I may pick up 10-20 pounds of flour (at 69 cents/5 lbs.), or stock the freezer with meat on sale, etc., or canned goods on sale. When we have a tight month, I know we can do ok because the freezer is stocked, the money is set aside for many of the bills, and the cupboards are full. Also, if possible, I usually take a "chunk" of money when we have a really good month and set it aside for big bills like insurance, taxes, etc. It's really just a matter of self discipline--if you don't know what is coming in every month, you can not go "hog wild" when you have a good amount of cash come in. My husband and I are both self-employed, and truthfully, it gets awfully slow in our business Jan-March or April. On top of that, if he works in April, we usually don't get our check for 30 days after that. So you can see, if we didn't put some aside in the other months, we'd be in a big mess.
Worst Case Scenario
I know just what you are talking about! I work at home as a contracted medical transcriptionist, and my work load varies greatly (someone goes on vacation, is sick, at a conference, etc.).
What I would suggest is set up a bare-minimum, worst-case-scenario budget and live on that (I don't mean to sound so dramatic!). Set aside money into an accessible, interest-bearing, but inconvient (like a savings account WITHOUT an ATM card) account for when you are overbudget to pay for surprises or "splurges" that come up during the leaner times out of that account.
Weekly "Need" Budget
A good way to budget is to add up all your known bills (utilities, mortgage, insurance, loans, subscriptions, gas etc excluding food) for the year and divide by 52 to get a weekly amount needed to meet your bills. Then any money you take in that week over the "need amount" is used for food first (mine is for food and gas because I don't have to drive anywhere if money is tight that week). Keep track of only the amount you make OVER your weekly "need amount" and subract from it any time you spend money on something that wasn't included in your "need budget" like gifts, unexpected doctor bills, car repairs, utility repairs, clothes etc.. Every week add in the "over" amount to your running balance. After using this method for awhile you'll find out if you need to re-vamp your "need budget" (like adding $5/week for Christmas bills etc) but once you get the base need amount right you'll always know if it's OK to take the kids to McDonalds that week or not.
I have heard of two methods of budgeting in this situation. The first is to budget normal expenses (rent/mortgage, food, etc.) according to your low-income months, and use the high-income months to pay the occasional expenses-- car insurance, etc., and savings.
The other method, and the one I believe is more effective, is to budget for a year rather than a month. Look at your total income/expenses for the past 12 months, adjust for expected income/expense increases & decreases, and divide by 12 to get a monthly budget. On the months that you get $4000, you only spend your $2000 budget, putting the extra $2000 in a savings account. Then, when you only get $1200, you can withdraw the extra $800 from your savings account and still cover your $2000 budget. (Obviously, these figures are only examples.)
This is difficult if you start your budget during the lean months instead of during the fat months, but can be worked, perhaps with a combination of the two methods until you reach your high-income months.
Budget and Save
With a variable income it is even more inportant to budget since you never know exactly what is going to come in. Making assumptions could put you in over your head fast. I think you have two options:
- Average his income over six months or a year and divide. Work with this figure as your income. This will mean you can not spend extra in the months of windfall because you will need to save it for the months of lean.
- Live on the least he makes and save the rest or use the extra to make double or triple payments on anything you can.
With contracting especially, gaurd your income and protect yourself for the lean times. Contracting can see not only lean months but also years. As a wife who went through this in the 1990 construction fall out in New England, be sure to make a nest egg and gaurd it.
Minimum Plus Plan
My suggestion would be for you to think back on fractions in your high school math class.... lowest common denominator. Rather than trying to set a budget based on what you make, base it on what you need. Look back at your spending habits in recent months and base your budget on the minimum requirements needed to cover groceries, housing expenses, credit debt, etc. That should be your running budget. In months when you make 4,000.00 rather than 1,800.00 put the excess in savings. Then you will have plenty when you hit a month where you only bring in 1,000.00, the car breaks down, or you need a little mad money.
Budget to Lower Income
Hello, I'm writing in reponse to Carol's problem about budgeting a family when she doesn't know how much she's getting. She should budget to one of the lower amounts of money earned. Then they can save the extra money for a rainy day or kids' college, etc.
We all live in a very tight world don't we. I prefer to think of it as a choice we all make to raise better children and make a better world. At any rate heres my .02 cents (cuz that's about all I have right now!!)
Budget on an irregular income. No complete ideas for you.....but I have a few conclusions since we have been there lately. You have to be at least a month ahead on things and you need a set monthly minimum that you must drum up. I work on call, and since it has been getting uncomfortable, I have been calling them.....and am doing better. Good luck.
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