Keeping a firm hold on your budget is hard enough, but what about when you have no idea what you will be getting in income, month to month?
What about expenses you pay once a year? Do they take you by surprise or do you set aside money throughout the year?
My goals with managing our budget are to:
- Keep track of our variable income
- Predict upcoming expenses
- Keep us in the black
- Maintain excellent credit
Although my income is fixed, my husband’s is completely variable since he started his own contracting business a couple years ago. Not only does it depend on what jobs he gets, but we often pay for materials and then have to wait to be reimbursed. Commercial customers can take up to a month to send in payment after the job is completed and they are invoiced. There are also a ton of new budget items — such as business licensing, insurance, and marketing; quarterly estimated taxes; tools and equipment.
Predict Future Expenses
The most important way I can plan for the future is to assess the present. Keep track of spending. I just use an Microsoft Excel spreadsheet I made to list our income and expenses. There are also many software programs with budget templates, and apps to track spending. I like to have our expenses broken down by lots of categories so I can see exactly where our money goes. Noticing trends in costs throughout the year helps me predict what the next month or years expenses will be. For costs that I pay once per year, I can both plan for when this payment will occur, and save up for it by calculating how much it would be per month.
For instance, if we pay $600 per year for business insurance, I can save $50 per month and have the full amount ready to go when the annual premium is due. Utility companies often offer a budget plan program to customers where they pay the same amount each month, based on an the total of the previous year divided by twelve months. It saves you from suddenly having months where the cost is much higher. By looking at all your expenses — whether they are annual, quarterly or weekly — on a monthly basis, you can also see what your expenses are versus your income and make any changes to be sure you can cover the costs.
Manage the Unpredictable
You don’t have to feel like your budget is running away from you. You just need to be a good manger, staying on top of the variable income and expenses. Here are my top 5 strategies:
- Again, number one is track spending. Whether you carry a notebook, use an app or keep your receipts, there is no reason to lose track of where your money is going. This is crucial data for making and keeping a sound budget.
- Have an Emergency Fund to deal with unexpected costs. This is very important so you don’t get into trouble with taking on debt you can’t quickly repay. Decide what constitutes an ’emergency.’ Before dipping into this fund, try to come up with another option to reduce the expense.
- Include a buffer amount in your bank account — I like to have enough extra money in the checking account to cover a month’s fixed bills in case auto-debits go through before deposits I am anticipating, or we don’t receive anticipated income. Make sure there is at least enough to cover something very important — such as mortgage or rent — so that you don’t hurt your credit rating with a payment not going through.
- Monitor accounts online frequently — I look for anything unexpected or unusual, in case of fraud or bank error. I know what is going in and out and where we stand at any time. This prevents us from getting hit with overdraft or late fees of any type. I have never needed to use any credit monitoring service because I am monitoring our accounts myself. (Besides, it is easier for me to detect if there is unauthorized use of the accounts than some outside agency.)
- Stay on top of payments, including automatic payments. Nearly all our bills are sent out automatically, but that doesn’t excuse me from carefully monitoring to ensure they are going through successfully and that the money is always available in the account when the bill is due.
Do you have a fixed or variable income to manage? I’d love for you to share the tips and tools that work best for your family.