Budget Planning With an Irregular Income

I promised to come back at talk more about my budgeting process when I explained a zero-based budget a couple of weeks ago.  So, here it goes!  I'll start with how I plan our budget.  I'll post something in the next week or so about how I maintain our budget.

Our income each month is irregular.  My husband works in retail, so he gets a base salary, plus a monthly commission.  We never know exactly how much that commission is going to be.  My income is also ever-changing because I work part-time and my hours are never the same. 

If your income is unpredictable, you can still plan a budget!

But, we do know that there is an amount that both my husband's commission and my income* have never gone below.  This is our minimum and, combined with my husband's predictable base-salary, this is where we start our budget. 

I shared the chart below on the last post about budgeting.  This would be an example of a predictable-income budget.   

Total Income:                 $3000.00

Total Planned Budget:     - $3000.00

                               ___________

                                    $0

Budgeted Item	Amount Planned	Amount Actually Spent	Running Total
Giving	$100.00	$100.00	$100.00
Emergency Fund	$50.00	$50.00	$150.00
Mortgage	$700.00	$700.00	$850.00
Real Estate Taxes	$200.00	$200.00	$1,050.00
Homeowner’s Insurance	$100.00	$100.00	$1,150.00
Home Repairs			$1,150.00
Electricity	$200.00	$200.00	$1,350.00
Water	$30.00	$30.00	$1,380.00
Gas			$1,380.00
Phone	$20.00	$20.00	$1,400.00
Cable	$50.00	$50.00	$1,450.00
Internet	$50.00	$50.00	$1,500.00
Food	$600.00	$547.23	$2,100.00
Car Payment	$300.00	$300.00	$2,400.00
Gasoline & Oil	$200.00	$197.49	$2,600.00
Car Repairs			$2,600.00
Car Insurance	$150.00	$150.00	$2,750.00
Debt Snowball	$250.00	$250.00	$3,000.00
Total			$3000.00

If our predictable income for the month (base salary, plus minimum commission, plus my minimum income*) were $3000, our budget might look like this.  If your income is predictable, you could stop here with your budget planning.  You would know exactly how much money you were going to have coming in and you could plan exactly how much money went back out!

But, if your income isn't completely predictable, you need to take one more step.  The irregular-income budget.

Notice, that the budget above is a pretty bare-bones budget.  There is no money being saved for possible car repairs or home repairs.  There is no money for clothing (there would be if there were an immediate need), or entertainment.  And, I definitely want to put more toward our debt snowball!

I know that we will likely have more money coming in each month from my husband's commission and my income*.  So, after I plan a predictable-income budget, I then need to figure out how we are going to use that "extra" income.  This is where our irregular-income budget comes in!

To make an irregular-income budget, I first have to make sure the basics are taken care of with the money I know will be coming in.  We have to have money for food, for our lights and water, for our car payment, insurance, and at least enough gas to get to and from work, our mortgage and insurance, and other important payments.  It is really about setting priorities.  Dave Ramsey calls this the "four walls."  You have to make sure your walls are up before you can put the roof on!

Next, make a list of everything else you would need or want money for this month.  This list might include things that you know you will eventually need money for even if you don't need it right now (like clothes) or a little bit of money for things you don't need, but would like (Like entertainment.  When you are in this for the long-haul you still need to have a little bit of fun.  Just keep it reasonable!).  But, if you are on baby-steps 1 or 2, make sure to make your emergency fund and/or debt snowball your top priorities for any "extra" income!

Once you have a list of expenses to include, you will need to figure out which are your priories.  List them from most important to least important and assign them dollar amounts.  You should also make the list longer than you think your income could possibly be.  It might look like this:

Budget Item	Amount Planned	Running Total
Debt Snowball	$100.00	$100.00
Clothes	$100.00	$200.00
Car Repairs	$50.00	$250.00
Entertainment	$50.00	$300.00
Debt Snowball	$200.00	$500.00
School supplies	$50.00	$550.00
Gifts	$50.00	$600.00
Debt Snowball	$400.00	$1,000.00
Total		$1,000.00

 Now, if we were to make an extra $1000 this month, we would know exactly where every penny was going!

Notice that "Debt Snowball" is on the list more than once.  I often split up our debt-snowball money into smaller chunks.  This way, I know that some money will be going toward it no matter how much extra we make.  But, if I were to put the entire $700 together into one lump-sum, we might not make enough extra to go toward anything else.  I definitely want to have some money put aside for clothes the next time my kids hit a growth spurt!  So, I split it up unto smaller amounts so that I can really prioritize things.

Now, as "extra" money comes it, I simply go down the list.  If we were to make $500 more this month, I would put:

1. $100 toward our debt snowball
2. $100 toward clothes
3. $50 toward car repairs
4. $50 toward gas, and 
5. Come back to put $200 more toward our snowball. 

If I made $501, that one extra dollar would go toward school supplies.  Anything that we don't get to this month might make it back on the list next month.  

So, there you have it, an irregular-income budget! 

Is your income unpredictable?  How do you plan for your "extra" money each month?

*Note: I've recently started counting all of my income from my part-time job as part of our irregular-income budget rather than our predictable-income budget.  There are two reasons for this: 1) We eventually want me to be able to be a stay-at-home mom again and not have an income.  So, we are trying to adjust our budget so that we aren't counting on that money each month for our basic expenses.  2) By putting my income into our irregular income budget, we find that we seem to have more money for "extra" expenses like clothes and our debt snowball.  It somehow tricks our mind when planning the budget because it looks like we have less money to work with than we actually do.