Variable income

foolofbeans

We really need to sort our finances out but DH has a variable income which means he gets less in winter months and lots in summer. How do I budget for the variation?
I thought we could base the budget on the lowest income amount but it just shows that we can't afford debt repayments in winter although council tax is not payable until April and I thought we could omit Christmas spending until later in the year when we are hopefully in a better position and will at least have a higher income.
Any advice on how we work it?

HappyMJ

Take last 3 years of reported income and divide the sum by 36 months and try and live on that amount of cash each month. Some lean months you will need to dip into an overdraft and in the good months you can pay off the overdraft and build up an emergency fund. If profits seem to be falling over the last 3 years then use a lower figure then the figure you get. If profits seem to be increasing then you could use a higher figure if you wanted to. Don't forget to budget for tax, national insurance and VAT if DH is VAT registered.

Get the council to divide your council tax into 12 monthly payments.

Budgeting for Christmas yes that's a great idea. Put a small amount of money into a Christmas savings account every week, maybe £30 a week, from January to November and transfer that money back to your current account at the beginning of December to spend on Christmas...do not dip into it during the year unless it's an emergency.

As you have seasonal income you might be better off working your figures out annually and dividing by 12 rather than doing a month to month SOA.

getmore4less

How big is the difference, can you post a rough month by month?

If the budget is good and ballanced for the year it becomes a cash flow isssue, saving from the good months to pay out in the poor ones.

DO a SOA in standard format along with the actual income cahs flow and someone can guide.

As we are in thelow period the trick will be get through to higher wages and be ready for next year.

A couple of things you can do in the good months is overpay bills that will need to be paid anyway(not optimum when you have debt).

Council tax is a good one of those if you can pay it all over the summer from the good wages you get a few winter month council tax free(not just the normal 2)
Try to have annual bills scheduled for the summer when money is flush.

Depending on the size of a few bills it may be the lean months can be managable.


if you get the budget right you could look at using a 0% purchase CC to pay for stuff in the winter then pay it off over the summer + a bit more to cover other debts.
Needs carefull planning any and money management.

With a look at a SOA and a income cash flow it should be possible to come up with some ideas to help.

YORKSHIRELASS

We are in the same position but DHs total annual income doesnt vary much from year to year. We take the net amount per annum and divide by 12 so we know his monthly average.

His income goes in a separate bank account and we transfer the net average out for spending. Of course it is tricky if you start this in the winter and if you have access to an overdraft that would help to begin with.

We budget everything monthly, including savings for Christmas, car repairs, a little emergency fund etc. We have been doing this for years now and once you get going it works well.

northerner999

The suggestion of taking three years' worth of expenditure and working out the average is a good one.

If you don't trust yourself spending money, overpaying certain bills in the good months is a really good suggestion.

But IF you can trust yourself to stick to a budget, then when you have the good months in the summer consider yourself like a farmer. Harvest away the extra in the barn ( highest-paying instant access savings account) and do not touch until you need it to eat (pay bills) in the winter.

The interest gained is not worth it IF you do not have the ability to leave it alone until needed, but if you can then the pennies will add up and help. Plus it acts as an emergency fund.

Of course this all assumes you are ok for the coming few months, if this is an issue then look at various forums on here for advice on cutting back, it's incredible how cheap you can actually eat etc, and work out what bills can be paid in priority. If some cannot be paid, even after cutbacks, they simply have to wait while you get yourself into shape.

foolofbeans

Thank you for the advice. I understand it makes sense to spread the cost of the annual budget into 12 monthly payments but winter is the lean period so we have an income of approximately a third less than what is earned in summer months.
We have recently received a windfall of a couple of thousand pounds which could pad out the few months until better wages appear but I had hoped to pay some of the debts down as at the moment our expenditure exceeds our income by quite a lot

getmore4less

Do a SOA for a full year

northerner999

foolofbeans wrote: »

Thank you for the advice. I understand it makes sense to spread the cost of the annual budget into 12 monthly payments but winter is the lean period so we have an income of approximately a third less than what is earned in summer months.
We have recently received a windfall of a couple of thousand pounds which could pad out the few months until better wages appear but I had hoped to pay some of the debts down as at the moment our expenditure exceeds our income by quite a lot

It is not 12 monthly payments but 12 monthly budgets of how much you need to live on. Then work out how much you need to have put aside by the time winter comes to cover the shortfall you know you will have,

Without working out these kinds of figures and learn to put something aside during summer for winter you will face the same problem every year. You clearly know your income drops by two thirds in winter, so it seems an absolute no brainier to put money aside in the summer to cover these costs. Don't worry about paying down debts until you know you can cover basic winter costs.

Karonher

I had hoped to pay some of the debts down as at the moment our expenditure exceeds our income by quite a lot [/QUOTE]


Do you manage OK in the good months, or are things tight then as well? If so it may be best to do an SOA and see if there are areas that can be cut.

getmore4less

Until you get it all down on paper(in SOA) you won't know how much spare a year you do have or how much you should be spending each month.

IF you have a cash buffer from the windfall , you can work out how much of that you need to kickstart proper cash flow buffering.

DO a SOA based on a full years worth of spending bills and put up the expected month by month income.

IF the winter is only down 1/3 on a good month then the bad months are only down 1/6th of the average(if 6 good 6 bad).

debbie_debt

foolofbeans we're had to live with a variable income before now and, like you, got into a bit of a mess trying to budget with it. I love yorkshirelass's idea of putting all of the income in a separate account and only transferring the average income that you need to live on. I'd recommend having that separate account with a different bank though, so it doesn't show up on your regular online banking. For me, that would be just too tempting to transfer over when you're feeling a bit skint!!

Debbie