Living on an Erratic Income

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Using QuickBooks to track our expenses and income has allowed me to notice where we spend money and how much money we make monthly and yearly. This is incredibly helpful in determining where we can save money, and it has also made me realize that our income varies greatly by month.  Actually, every other month our income goes up and down like a roller coaster. One month we average $10,000, while the next we only bring in $3,000.  Since our bills stay pretty much the same, it makes budgeting for the reduced-income months difficult.

Before my husband and I started analyzing our expenses and planning how we were going to save money for a down payment, we didn’t realize how erratic our income was. In a month where we had a wind-fall, we’d pay our bills easily and still have spending money for large  household purchases. When the next month came, and our income was greatly reduced, I’d stuggle to pay all the bills on time. This negatively affected our credit scores if I paid late, and increased our overall debt if I had to ‘borrow’ from a source of credit.

A sampling of 2008s income by month

A sampling of 2008's income by month

Now that we are on a budget and much more savvy as to where our money is spent, I am better able to use the QuickBooks graphs effectively. I used to think that families on a stable income had it easy. They knew how much money they brought in each month and what bills had to be paid. However, I now realize that there are drawbacks to a stable income, such as saving large lump sums at a time. Also, having a stable income means if you make a spending mistake one month, it’s difficult to ‘catch up’ the next since the amount coming in stays the same. With an erratic income, there’s a little more flexibility to saving large amounts of money in a good month, as long as you can budget for the upcoming short-fall month.

For instance, on the months where we make more money, I try and deposit a minimum of $1,000 into our savings for our ‘house fund’ (or 25% of the income received). I then budget out next month’s bills and try and determine how much income we can expect on a minimal basis . Looking at my QuickBooks graphs over the past 3 years, our lowest income month was $2,800. This is my base line. I then put aside the difference between the $2,800 that I know we will at least bring in, versus the large amount that just came in. Our bills are quite high (averaging $6,800 including my husband’s one employee), so I try and save about $2,000 – $3,000 toward next month’s bills. In actuality, I need to stash away at least $3,000, and if I can, $4,000 towards next month’s bills. Luckily, we usually make more than the baseline figure of $2,800 even on a slow month.

Reducing our bills has helped with our overall budgeting as well as anticipating those bills that come bi-monthly or tri-monthly, like our water and electric bill or our life insurance payments. Sometimes these two give us a double-whammy mid-summer and our monthly bills increase by $600. Since our water and power bill come every 2 months and our life insurance every 3 months, they sometimes sneak up on us at the same time.

Having a savings account and budgeting for next month’s short-comings helps to reduce the anxiety of anticipating larger bills. When it doesn’t work out as planned, we have to dip into our ‘house fund’, which I really don’t like doing, to keep up with our bills and pay everything on time. My budgeting isn’t an exact science, I know I could average out my minimum income, then try and reduce our bills to that amount. But for now, it all works out.

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