budgeting if varied monthly income

lbelleJanuary 31, 2007

I hope someone can help. My husbands company pays income plus distributions. Thes can be anywhere from 2-5 months apart. Some are more and some are less. We just upsized our home, and added tuition and orthodontic fees to our budget, not to mention new house items. We didn't have to budget much before. Just be aware. Now, I think we're getting in over our heads. We have been spending too much.

I've gone through past expenses to see where we have been spending, but I'm having trouble setting up a budget with the distributions, and also what SHOULD an amount for groceries for 4 be? Etc. Any one have websites or books that can guide us?

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joyfulguy

When you have two income streams, with one being irregular ... and uncertain, to boot ... you need to have some funds on hand for cushion.

For example - I was leaving a village, bound for the city, driving on a divided highway a month or so ago, just passed a gravel truck and pulled into the outside lane ahead of him ... when I saw a couple of guys who looked as though they might be setting off an a rather long walk ... thought that it would be considerate to offer them a ride, as it was rather cold, began to pull off of road - when BANG! the gravel truck caved in the back end of my station wagon.

No one hurt. Vehicle's a write-off.

I haven't had message from the insurance co. yet, but went out and bought a "new" car (an old 5-speed one with small engine that sips gas). Wrote a cheque for the $2,500. without having to sweat over where to find the money.

You have some regular expenses that must be met.

Perhaps you can cut down on some of them, perhaps not.

You have some other expenses which are important, but you have some flexibility as to timing and amounts.

First thing - sit down and write out everything that you spend money on, and keep itemized record for a time - at least a month, two or three is better, a whole year better yet.

Keep them - they'll give you guidance, next year.

Also, record the amounts of your irregular distributions: perhaps, over time, you can see a pattern, e.g they're small in spring, larger in autumn. More infrequent, later in the year, etc.

Dig up former records of the distributions, if you can, to get some earlier information which may assist you in observing those patterns.

If you have credit card debt, it's important to try to get that whittled down, especially storee-issued cards, for most of them charge about 25 - 28% interest - I call that drawing blood. Regular cards usually charge about 15 - 18%.

I have a fully secured (by stock, mutual fund certificates) Line of Credit at my bank - that I'm not using at the moment, but when I use it, the interest rate (was recently) 6.25%. I like that rate a lot better.

Would you rather get a $100.00 raise in employment income, or save $100. on a purchase, without interfering with your lifestyle?

You must earn $133.33 more employment income, for when you share your annual income with your partner in crime, the income tax people, if you're in 25% marginal tax rate, that'll leave you with $100.00 in pocket to go out to buy stuff ... assuming that the stuff that you're buying, as usual for most of the stuff that we buy, isn't deductible.

Learning more about where the money goes usually helps people get the feeling that they just got a raise in pay - for when they see their expenditure patterns on paper ...

... they decide to change some of them!

Good wishes for success in your enterprise.

ole joyful

    Bookmark   January 31, 2007 at 5:59PM
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qdognj

Without knowing the $$ value of distributions and the frequency, there is almost no way to budget for that situation..I would use those distributions as "large ticket" expenses, those that can be planned weeks in advance...As far as groceries for 4 for a month, i'd use 500-600 for that

    Bookmark   January 31, 2007 at 6:00PM
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patser

Could you set up your budget only considering the base income? If you need the distributions to live, then use it for extra payments on outstanding bills. Since the distributions are variable in timing and amount, I'd try and eliminate them from the basic budget discussion entirely.

    Bookmark   January 31, 2007 at 10:18PM
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lbelle

All good points. Let me clarify a little. When we bought(built) this house, we based it on on a certian income over our base because that amount was always met in the last 10 years. We always pay off credit cards monthly- that seems to be the ouch factor, lately. I've been going over the past 5 months and breaking down what we spend on different categories. We take out approximately 35% of each monthly net to put into IRA's, mutual funds and college funds. We dollar cost average every month to make sure we save, and make up the difference with the distributions when we get them. This seemed to work because we always had plenty of savings to get us through. We still do have savings in mutual funds to use, but I'd rather get a grip and budget.

So, do we stop putting so much in monthly into the IRA's and just do lump sums? My Husband won't like that. I'm afraid we wouldn't save well.(We're counting on only us for retirement,we've been planning on Social Security not being around for the last 20 years). You can see how difficult it is to try to budget with a deficit every month. I have to plan on that extra distribution as actual payand finite amount, where I can't touch it. I guess that's what is confusing me. How MUCH should I budget for clothing, , food (do include or exclude eating out?), car repair, house maintenance, etc.

Thanks for the advice. By the way, I did figure out I've been spending about $600 on groceries/month. How about that?

    Bookmark   February 1, 2007 at 7:29AM
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qdognj

wow, don't kill yourself over the budget shortfall when you are saving 35% of NET!!!! very impressive!!! I'd cut back the contributions to the point your monthly budget works, then use distributions to invest for the difference you made to your monthly investments...keep up the GREAT work

    Bookmark   February 1, 2007 at 8:02AM
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steve_o

A couple of thoughts:

- You can continue to budget on base plus a fairly certain amount of distributions;
- If you can rearrange some payments to match distribution times, that may make budgeting easier. I can pay my car/home insurance monthly/quarterly/yearly; if the income is available quarterly, why not try to make the payments match up? Ditto with the retirement savings: budget monthly and pay quarterly. If you find that's not working for you, you'll be only a few months behind and you'll know you need to do it differently.
- As far as typical figures to use, that will be tougher. Some depends on where you live, on what chunk of income your housing costs take, whether you pay for day care, etc. When I plugged the phrase typical family budget expenses into my favorite Web search engine, I found a few sites which listed expense amounts. They could be a start. Personally, I like to tote up my expenses for the last several months and see if I like the results. Sometimes I'll consult a site like the one mentioned above (for example, what is my heating bill relative to others with a house the size of mine?). But if a certain hobby incurs some expenses I'm comfortable with, and it's not shorting out something else, I won't care what some typical family is spending on their hobbies.

Good luck! So far, it sounds like you're doing great.

    Bookmark   February 1, 2007 at 9:15AM
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