Sunday, March 10, 2013

How to budget with variable irregular income

My husband is in sales and since his commission checks go up and down, that means our incoming cash flow does  is always variable I  also have some part time income right now from subbing and some online jobs that  I work.   It took me some time figure how we should really budget for this and that is one of the reasons we got into  credit card  debt over 15 years ago when we were first married. I spent based on some of his  highest months and continue to live that way when his income varied. 
Total your expenses
When you're making a variable-income budget, start by totalling your income as you would if your income was fixed. Add up the things you spend money on every month. This includes rent/mortgage, utilities, car note, car insurance, health insurance, life insurance, phone bill, loan payments, credit card payments, and taxes. You should even calculate how much you'll spend on variable expenses like gas and food.
Average your income
If you had a variable income last year, too, use your last tax return to come up with an average monthly income. Just divide your gross income by 12 to come up with an average monthly income. If you don't have a year's worth of income, average the months you have. For example, if you've been freelancing or contracting for 7 months, add up the last 7 months of income and divide it by 7. This will give you an average income to base your budget on.
Does your average monthly income exceed your expenses?
Your average monthly income needs to meet or exceed your expenses. If not, you're going to run into a cash flow problem like we did when we first got married.  I wasn’t very frugal nor did I ever keep a budget.    I had to adjust our  expenses to fall below your average monthly income.

Put your put in practice 
I have 3  accounts that I use to help me budget and make sure that we are on track!
I have  one checking account and  3 savings accounts. My checking account will hold  our  monthly income that I  use to cover bills and other expenses.    I have my husband’s pay deposited in to the first saving accounts and then I transfer it to my checking account to cover my bills.   I have any of my money directly deposited as well.
The other savings account will be for savings  It is really  my emergency  fund .  .. Start your budget at the beginning of the month. Your checking account needs to have enough in it to cover your expenses for the month.
As you get paid throughout the month, put the money into Savings Account #1. You shouldn't have to touch your savings account during the month. If you do, then you didn't budget enough for your expenses or you're overspending (or you ended up getting paid less than average, see below). At the end of the month, around the 28th, transfer  or what you need to cover your expenses) into your checking account. You are also budgeting a month in advance  this way.  Anything extra will become your buffer for the months where you income is below your regular expenses.

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