Budgeting On A Fluctuating Income
Q. I would like to know if anyone has any advice or knows
any good resources for budgeting on a fluctuating income. My husband is self-employed
in the construction business, I am a stay-at-home mom with 5 kids. His income
can fluctuate from $500-$4000 a month. This amount also includes the money we
use for business expenses such as tools, gas, materials etc. We always manage
to just barely get by, of course many times we are late on bills, etc. Then when
we make more money we are having to play catch-up and it is very hard to get ahead.
I would appreciate any advice from your wonderful readers.
The first thing I would do is set up a budget so that
I knew exactly what my monthly bills are. Then I would set up a series of payment
envelopes, marked with the names of each of the bills (electric, insurance, etc.).
On the months you have extra, put more than one month's payment inside the envelopes.
Do not spend the extra that you have! Pay the month's bills from the envelopes,
but do not touch what is left over; it is "saved" for the next month. Add to it
as you are able, but keep it in reserve until it is due. If you are disciplined
enough, you can keep from spending what seems to be a windfall one month, and
reserve it for the times when you have less. It's sort-of like "income averaging".
The reader asks how to budget on a fluctuating budget. I
have read alot on budgeting and have worked this budget for 3 years.
First, split your bills into monthly and irregular(those that need paid every
few months, six months or yearly). Determine the amount you need to pay your monthly
bills. Then divide each irregular bill by 12 (or 10 might be better). Add those
amounts up and the sum is what you need to save each month towards those bills.
Add the amounts for montly bills and irregular bills together. This is your monthly
income. Any money made each month over that amount goes into an overflow column.
If you have a month where the actual income falls below this monthly income amount,
withdraw the amount needed from the overflow.
car insurance $240/six months $40
vet $120/yearly $10
school fees $240/yearly $20
$1090 monthly income
Hope this is helpful - Mary Ann
The best way to handle a budget in this scenario is to average
everything out and spend accordingly. This will take some time to do if you haven't
already kept a written record of ALL your expenses, but it's worth it.
The first thing to do is add up all of your bills - even the ones paid yearly.
This includes weekly living expenses also, like groceries - also include a miscellaneous
category of anything and everything that you spend money on not mentioned elsewhere.
It is also wise to add in 10% or 15% extra for emergencies, price increases, etc.
Add them all up for a 12-month period (weekly X 52, monthly X 12, etc.) and then
divide them all by 12. This is how much money you need each month to make ends
Next, do the same with your income. Add it all up for a year and divide by 12.
Only include the income from hours worked - don't include any bonuses, other
incentives, etc., unless they are as "guaranteed" as the regular income
is. This shows how much money you have to spend for your expenses, so hopefully
it is larger than the amount in the first paragraph. If not, you may need to
make some adjustments such as eat out less, bring lunch to work every day, watch
what you might waste or throw away, etc.
If money is tight, then the idea is to hold on to that money as long as possible
and do not spend what you do not need to spend. Pinch those pennies until they
scream! All it takes is a plan and the discipline to live by that plan - working
on the attitude also helps. I look at my spending plan as a game instead of a
deprivation (i.e., let's see how low I can keep my electric bill this month, or
let's see if I can beat last month's record deposit amount into savings). You
can do it! - Tracy
Make a master schedule for bills that you have regularly such
as electric and rent. Next include bills that you get throughout the year such
as car insurance. Make a category for food, clothing and these type of bills.
Include an entertainment category and a repair (emergency) category . Put these
all down one side . Across the top put the month names such as January. You need
to break down what you need to pay each month regardless of income for all your
bills. Some months you will have higher electric bills and others you will have
car insurance premiums due. You need to put money into a special account, envelope
or drawer to cover these 'extra' bills when your income drops. - CSinbad
The basic idea is to add up (maybe using last year's records)
total income for the year, and divide by 12. In months with more income, reserve
what's left to help cover months with less. Eventually one can set aside a bit
of savings which will help to cover occasional shortfalls. Spending should be
constant, not variable with income. Sometimes expenditures can be juggled to fit
one's payment schedule (call the business/creditor in question and see if the
due date can be changed. Utility bills can't be, but many others can, including
credit cards.) An excellent website devoted to budgeting and money management
is cheapskatemonthly.com. Books by Mary Hunt are also extremely useful. - Marianne
First, average your yearly income. That means if your yearly
income is $23,000, you only have $1,983 you should spend in a given month. 23000
divided by 12. This is not an easy way to live, but, if you can stick to it life
gets much simpler in 6 to 12 months. Anything over $1,983 goes into savings whether
it is 50 cents or $2,000. The first few months may be somewhat lean but once you
get adjusted to living on just the monthly average of your annual income it makes
life incredibly easier. You will have to deal with fixed expenses and there will
be lean months especially in the beginning. However, this method does prevent
you having to play catch up. Living on the average monthly income can be easily
sabotaged by either spouse or older children. You may need to sit down, hammer
out a budget and then have everyone who has input into how money is spent sign
a contract agreeing to support the new way of living/spending money. Having lived
on a fluctuating income at one time, my heart goes out to you, but we are living
proof that it can be done without going further into debt and keeping your credit
rating reasonably good. - Mary
When my parents decided to go country, as in live in the country,
money was tight. But, friendly neighbors helped them when it came to planting
a garden. We were lucky and had a bumper crop of corn, green beans, potatoes,
broccoli, tomatoes. etc. We learned how to freeze and can. My mother learned how
to make jam and jelly. Not only was it less expensive, but the home-grown food
was delicious. Imagine, one package of green bean seeds costing about $1.25 grown
properly made 1-2 rows of plants that yielded a lot of frozen green bean packages.
We ended up having to purchase 2 freezers. By the way, upright freezers are always
easier and better than chest freezers. forgot to mention that making a garden
around your house doesn't necessarily mean a plot with rows. Also, vegetable gardens
are now laid out as landscaping plants. Good luck. Diana