Planning variable income

[Carrie12345]

I feel weird posting this, but it's not exactly a conversation suited for IRL talk, so I'm going to give it a shot here.

 

Dh's new employment situation involves a steady salary plus commission plan. We are able to operate comfortably (relatively, of course, lol) on the salary.

 

Trying to set a plan for variable commissions is driving me insane. There is no real way of even ball parking anything. A gabillion dollars a yearis just as good a guess as zero. And that could vary by year as well as month.

 

Because of that, percentages don't even make sense. On our list of things we would like to do (after eliminating what's left of our debt and saving), there's everything from needed home repairs to neat homeschooling add-ons and saving for a larger home. 80% of a hypothetical $100 for a home downpayment is just as silly as 20% of a hypothetical $100,000 for preschool math manipulatives, lol.

 

I guess I'm just feeling incredibly lost. I know how to budget real numbers. Imaginary numbers drive me insane, and I'm so scared of making big mistakes if we don't have some sort of plan in place. But where do we start a plan?

 

I have been googling and reading about some methods, but none seem to fit our specific situation. We don't want any variable income figured in our regular monthly budget, we just want it to go toward savings and things that will not impact our regular expenses.

 

I'm not even sure I'm making much sense, lol. But I'm open to advice.

[wonderchica]

Can you figure out an average after he has been on the job a few months? My parents have always lived this way, as my dad owns his own business which ebbs and flows in income over the year(s). My mom figures out an average take home pay and does a "general" budget according to that, adjusting as they need to. Some times are rich and some times are much more limited. Even as kids, we picked up on the pattern of when we were doing well and not as well. No one made a big deal about it because my parents adjusted accordingly. I think having a good amount of savings is very important to variable income families. I would figure out what the bare minimum you need each month for bills/necessities and then come up with some percentages for how any income over that will be used.

[Carol in Cal.]

If you can live on the salary, that is great. Do that.

 

Then make a list of all of the other things that you would do if you had the money. Prioritize that list, and take them in order.

[elegantlion]

My dh's income used to vary incredibly different from month to month. One person advised us to budget based upon guaranteed minimum income and consider the rest "bonus". That didn't work because his industry was so variable. Winter construction income is much different than summer construction income. There was no way that would have worked for our situation.

 

One thing I did was get in the habit of paying yearly expenses when we had a good month, if that makes sense, or set it aside earmarked if you can't pay it yet. It was sometimes easier to pay car insurance 6 months at a time instead of monthly that type of stuff.

 

We often had a list going of larger expenses, needs and wants, that we would refer to when we had money. We had to get used to feast or famine and honestly I hated it, but we had no set salary either, everything was based upon how much dh could work that month. We got really good at prioritizing needs and wants.

 

I had asked a few other financial people how to budget with a variable income, no one ever gave me a workable answer.

[Truscifi]

We are in a similar situation. Dh has a base salary and gets a monthly bonus based on sales. We prioritized our goals and just put everything extra toward one at a time. Right now for us that is getting rid of debt.

[Annie G]

I think it's You Need a Budget that has you making a monthly budget based on last month's income. So you get ahead for a whole month- save enough so you have that cushion- and then in October, you make your budget based on how much you earned in September. The money's there- you just have to decide HOW to use it.

 

We don't do anything with percentages except retirement money.

 

You probably need to make a priority list of things you want to save for and when a month begins, decide how much of the budget you want to put aside towards each goal. If you just throw all the extra into a savings account, it's too tempting to just spend it on the next shiny thing you want rather than intentional spending.

It would take some time to set this up because you have to decide what areas you want to put money aside for and how long you want to save before you spend it. For us, it's only a few minutes every pay period to move the money and note in the spreadsheet how much is added (or deducted if we spend) for each category.

 

Can't wait to hear the replies- I always learn something new when people discuss their methods!

[AdventureMoms]

We are like this, DW's salary is enough for our needs, but some months there is extra (a little or a lot) due to overtime, bonuses, travel, etc. We make a list and prioritize it for most things. Half goes to savings, half toward whatever we're saving for right now. Most recently we were saving up for a new dining room table. DW has been working insane hours this past week, came home yesterday and handed me a check and said "ok, here's the table!"

 

The only issue for that is it doesn't work for long-term savings type things (like a new house or extra retirement savings) we do those on a percentage. If you want, you could do a percentage of all commissions over $500 or something. The downside is you don't know how long it will take to save for something. The upside is you have a good motivator to make money and to stick to the budget. I also put any money I make (I tutor occasionally and sell household stuff pretty regularly) toward whatever we're saving for so it's a good motivator for me too.

[Carrie12345]

Too many good tidbits to respond to individually, but thank you for each of them!

 

I had asked a few other financial people how to budget with a variable income, no one ever gave me a workable answer.

This is the part that's frustrating me!

We've been working on prioritizing lists, but it's frustrating as heck. For example, we've been wanting to get our backyard "landscaped" (filled-in, really; it's all rock), which would be nice. But if we knew there was going to be enough extra money to move a year later, I'd be annoyed that I spent money on dirt.

There are a million stupid little things like that going through my head. :glare:

[cjgrubbs]

If you can live on the salary, that is great. Do that.

 

Then make a list of all of the other things that you would do if you had the money. Prioritize that list, and take them in order.

 

This is what I would do since you can live on the salary! Now, if you couldn't that would be a much more complicated problem.

 

I'm going to venture and guess that you and DH might not have exact same priorities so you might have to do a little give and take. Such as we'll save the first $X that comes and then spend the next $X on home repair and then spend $X on extras for schooling....

[Stayseeliz]

Dh works on straight commission so we set what we need to pay the bills then prioritize based on the "leftovers". It's almost impossible to budget when you don't know what checks will be like.

[acurtis75]

Some of these may be things you've already done since you said after eliminating debt and savings but here are some suggestions and things that we do.

 

Set up your basic budget based on the salary that is guaranteed.

 

Set savings goals for priority items starting with an emergency fund of several months expenses. Once that is established then pay off debt.

 

After that, prioritize your list of things you want to do. For example, if your sure you want to buy a bigger house then a large chunk of the extra money should be put towards that savings but that doesn't mean all of it has to go. We generally consider it more of a goal setting exercise than budgeting. For example, we needed to save about $15,000 for a house down payment so we wrote that as a goal and each time we got extra money we evaluated how much should go towards short term wants or needs and how much should go to the big goal. Using percentages or set rules is a lot easier on a fixed income. When we have good months we discuss what to do each time. Sometimes 95 or 100 percent of the extra money is saved for the big goal and other times we choose to use the money for more immediate needs or desires (I.e trips, purchasing things on sale that aren't absolute necessities, etc).

 

Overall, I think managing a variable income requires a lot of regular communication and planning and it is an adjustment for people who are used to very structured budgets.

[carriede]

If you can live on the salary, that is great. Do that.

 

Then make a list of all of the other things that you would do if you had the money. Prioritize that list, and take them in order.

 

:iagree:

[Beth S]

We've done this for a long time. Since it is a new job, I would absolutely spend only for essentials right now. You need to set aside money in your budget for future car insurance payments, but not a vacation. I would not plan on any of the extras until you see how the job pans out.

 

:001_smile:

[celticmom]

Too many good tidbits to respond to individually, but thank you for each of them!

 

 

This is the part that's frustrating me!

We've been working on prioritizing lists, but it's frustrating as heck. For example, we've been wanting to get our backyard "landscaped" (filled-in, really; it's all rock), which would be nice. But if we knew there was going to be enough extra money to move a year later, I'd be annoyed that I spent money on dirt.

There are a million stupid little things like that going through my head. :glare:

 

In the case of a home improvement when you plan to move later, I would consider whether or not and how much it will improve the salabillity and/or selling price of your home. I would also consider the degree to which it improves the livability of the home for you.

[Colleen in NS]

We don't want any variable income figured in our regular monthly budget, we just want it to go toward savings and things that will not impact our regular expenses.

 

I think you have your answer already. Live on the salary, and put the rest away until things (vehicle/home repairs, other emergencies, unpassable bargains on homeschool doo-dads, etc.) come up. Don't make yourself crazy trying to spend it already! :D

[Mama Anna]

Haven't read all the replies, but this is what we do - always live on last month's income.

 

For instance: Right now it's the end of September. All the income we've had in September has gone into the bank, while we live off of what dh brought home in August. After the last income is in, I will have to set up a budget for October, using the amount of September income that we have.

 

Our income is pretty low right now, so that's always interesting. But I try as best I can to divide yearly bills (i.e. Auto or Renter's Insurance) into monthly amounts to tuck away as part of the "required minimum" budget. (In other words, if we don't have enough income, they'll get funded out of our savings.) This means that we shouldn't be hit by a huge surprise bill in a lean month. If we have a "fat" month and I have some left after chucking the minimum amount in all the different categories, then I have the freedom to plump up various categories that we'd like to put more in. For you that might be Homeschool Extras, New Home Savings, etc.

 

One idea that might work is to have a sort of running minimum in a certain category. For instance, if you want to be able to pick up cool homeschool add-ons when you find them on sale, you might make a note to plump up your Homeschool Extras category to a certain amount whenever possible. If you don't spend any money on homeschool for a particular month, you don't need to put any more into it - you still have the minimum. On the other hand, if you plop down $200 for awesome Math manipulatives, you'd want to replace that when possible. But there's no percentage involved. As someone suggested, it's just a priority list of where the extra money goes.

 

Clear as mud, right?

 

HTH!

Mama Anna

[Random]

We don't want any variable income figured in our regular monthly budget, we just want it to go toward savings and things that will not impact our regular expenses.

 

I think this is what you'll have to do, and then use last month's commission for this month's extras and savings. Once he's had the position a while, you'll get a new rhythm and get a feeling for which months of the year are typically better financially.

 

We are similar, except there is no salary. Some months, we're flush; sometimes we go three months without a paycheck. It really is a wild ride! I've had to completely and totally let go of the hyper-planning I used to do.

[Colleen in NS]

...always live on last month's income.

 

For instance: Right now it's the end of September. All the income we've had in September has gone into the bank, while we live off of what dh brought home in August. After the last income is in, I will have to set up a budget for October, using the amount of September income that we have.

 

This is what we do, too, except the basic budget amounts for every month are always the same. Any extra gets set aside to use for emergencies, to fund months when there's not enough income to meet the basic budget amounts, or to pay for other little bits here and there.

[Zoo Keeper]

We often had a list going of larger expenses, needs and wants, that we would refer to when we had money. We had to get used to feast or famine and honestly I hated it, but we had no set salary either, everything was based upon how much dh could work that month. We got really good at prioritizing needs and wants.

 

:iagree:My husband is an artist (oil painter), and our income is variable. Very, very, variable. Pay what has to be paid first (mortgage, car, etc.), then see what is left. Do not assume you will have "fun" money for eating out or other extras; you may end up spending next month's needs if you do this. Whenever you can, put something aside (however small) into the "slow times" fund.

 

Think twice (and three, and four) times before you buy--anything. Do you really need this NOW, or can it wait?