Budgeting with Uncertainties

Income stability has been something that I have yet to experience in my adult life. In a struggling economy with the number of contract, part-time, and temporary positions increasing, I imagine that many others, especially those just starting out in their careers, are experiencing a similar degree of financial uncertainty. It can be difficult to plot out a household budget when your income is constantly fluctuating. Being a single(variable) income household with a young family, my husband (DH) and I have faced many challenges before finally coming up with a financial plan that suits our needs and works best given our income situation.

My husband is our primary income earner. His work is not salaried (no work = no pay) and is very much a part of the boom-bust economy. When times are good, he can earn nearly double his usual earnings with overtime. Alternately, at times, he has narrowly escaped lay-offs, working as little as half of his regular hours for weeks on end. Work is weather dependent. Impromptu days off – although always a welcome break in our eyes – obviously have negative impacts financially, as do sick days.

Being a recent university graduate gone back to graduate studies and having two young boys, my own contribution to the finances has also fluctuated widely with periods of no paid employment, F/T and P/T employment (at varying pay scales) and at times receiving maternity benefits from the government. Because of all this, our household income is never the same in any given month.  It takes some will power not to become overly indulgent when earnings are good and quite a bit of creativity to trim the budget other times.

How do we deal with it?
Our budget is based on 75% of DH’s average earnings. We try to get by taking on little debt to avoid high fixed monthly costs.

Where possible, we have arranged smaller incremental payments (i.e. weekly, bi-weekly) and have spread payments evenly over the month. This helps to ensure we don’t have a large amount of bills due at one time and has benefits such as quicker mortgage/loan repayment.

We pay more taxes. Yes more. We both arrange to pay more income tax so that come tax time, we get money back. Which leads me to how we handle our debt/savings.

In having an extremely variable income, we’ve struggled with committing funds to savings and debt repayment. Contrary to the advice of financial planners, committing funds in these areas just hasn’t seemed like the right decision for us since our circumstances could change at a moments notice and we are always hesitant to bite off more than we can chew. As for investments, we contribute minimally to RESPs and tax-free savings accounts. We also have some home equity. Although we have sought out minimal regular contributions, we try to make additional annual lump sum payments when possible. We also pay a fixed amount for life/disability insurance which is especially important for us since we are primarily a one income family and the chances of injury are high in my husband’s line of work.

One of our short term goals is to start contributing in some small form to RRSPs once I have a more stable income. We are lucky my husband has a pension and health/dental benefits through work. For debt repayment, we’ve generally stuck to the minimum payments and paid debt off using the snowball method (we are small gains incentive type people!) when we’ve had additional funds.

Something we’ve been working on has been making a conscious effort to contribute any additional earnings beyond our budget to an accessible emergency fund – which we have dipped into on a couple occasions to supplement our budget due to sickness/weather.

These are just a few of the things we’ve found to work best for us given our experiences, circumstances, and values. How do others budget with a fluctuating income?

This is an article written by a personal friend of Mrs. SPF, Kristy, who blogs at Treading Softly a pretty cool site that pretty much hooked us as soon as we learned of it.  Funny how you might know someone and have no idea they blog! (for Treading Softly and us!)

16 comments to Budgeting with Uncertainties

  • This is something we have also struggled with though I don’t think our income varies quite as widely as yours. I blogged about how we deal with the fluctuations a bit here: http://www.preservingpennies.blogspot.com/2012/02/our-january-budget.html

  • Jana @ Daily Money Shot

    I think these are great tips for anyone not only in this situation but for anyone preparing for this situation. I’m preparing to move to freelancing full-time and, while my husband’s income is steady, mine will no longer be and we’re having to figure out how to make adjustments. The idea of paying more taxes is a good one.

  • I definitely struggle with this. I’ve had nothing but temporary jobs in the past year, and I suspect that will continue. Luckily, I can always get temp jobs so I’ll rarely be out of an income, so I just budget as if I was making the least I’ve ever made and hope I make more (lol)

  • Marianne – I really like the pie chart you came up with. Sometimes a visual is so powerful. For me, seeing a high proportion of the budget allocated to spending might be an incentive for me to really pay attention to variable spending. We also borrow from other categories of the budget when needed and sometimes splurge a little (ie. dinner out) using the surplus as a reward when we have come in under budget.

    Jana – Best of luck with your new career. It can be so hard to give up income stability to pursue your passions. Kudos!

    Daisy – I find it very rewarding to budget based on the least amount of income you usually make because then any variation is always positive!

  • bax

    Big emergency fund, and living off last month’s dough. That’s how we make it. Oh, and when we’re finally debt free, you can bet we aren’t gonna go back in for a nicer house :)

    • That’s really smart. I think a lot of people struggle with always wanting more. I think the key is just planning and putting aside money for things that we want rather than taking on a loan or line of credit to pay things off later. I find for myself when I am spending saved money I have a more rigorous justification process in my mind than when I simply put something on credit (for whatever reason!). So maybe once you’re actually able to afford that nicer house of of pocket you may re-evaluate and decide that you’d really like to spend the money on something else. :)

  • Thank you very much for sharing how you do things. It’s nice to see how others run their households as it helps to give me ideas to apply to mine.

    Times might be tough, but it sounds like you have a lovely plan that seems to be working. Don’t worry too much about conventional financial wisdom. I think everyone would walk a bit differently when placed in someone else’s shoes.

    It sounds like you are doing just fine with what you’ve been given. Thanks again for sharing!

    Humbly Yours,
    Humble Laura

    • Thanks for the words of encouragement. I’m glad you found some ideas to be relevant to your own situation. How true that “everyone would walk a bit differently when placed in someone else’s shoes”. It is so easy to criticize or preach about how everyone should manage their personal finances when you’re coming from a place of privilege with good jobs and/or stable incomes.

  • Good for you for knowing what your plan is and how you use it. Many people aren’t even sure where any of their money is going, so as far as I’m concerned, you’ve conquered one of the most difficult parts.

    Continue staying aware of your current status, and keep looking to the future for potential problems. You are doing great, and I’m sure it will only improve as long as you have your plan and stick to it!

    It’s good to hear that you snowball your debt when extra money becomes available. Debt is a personal finance leech. :-) The best to you and your family!

    Thanks,
    Timothy

    • Thank you for the best wishes and encouragement, Timothy. I think your advice about looking to the future is really helpful. It can sometimes be hard to get a handle on the future when you are trying so hard to dig your way out of debt from the past but forward thinking is key to avoid getting stuck in the endless debt cycle!

  • Sean H

    I’m one of those uncertain new career contributors. I’m still trying to figure out what I live on, sometimes get discouraged because a random bill will pop up I’m not expecting. And I am so frugal so I get really upset when something unexpected comes in like that. I’m just trying to get into good habits right now.

    • I can definately relate. It always seems to be one step forward two steps back but at least if you are forward thinking like Timothy suggested above, you aren’t set back quite as far as you would be if you didn’t plan for it at all. Nothing like being so proud of the emergency savings fund you’ve built up to be hit with an unexpected vet bill that wipes out half of it.. (true story)..but on the bright side, at least I didn’t have to charge it or stress over how to cover the expense. Best of luck with your new career!

  • Very good strategy here – my income hasnt been variable since college, but when it was I really wish I would have had a much better plan for it than I actually did, because I could have avoided a lot of “disasters” that were essentially self made.

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