Budgeting for the Unpredictable

Miranda says her husband's income is irregular as a contract hauler. Miranda doesn't know how to budget at the beginning of the month with the irregular income and expenses. Dave explains.

QUESTION: Miranda in Wisconsin says her husband’s income is irregular as a contract hauler. Miranda doesn’t know how to budget at the beginning of the month with the irregular income and expenses. Dave explains.

ANSWER: The higher his income, the higher his fuel bill. You need to start figuring out what percentage of a particular haul that you spend on fuel. If you are paid $1,000 for a haul and spend $250 on fuel, then you have a 25% fuel ratio. Any time he does a run, you need to set money aside to pay that fuel bill out of that check. That’s how you handle that part of it.

As far as the irregular part goes, Sharon and I have lived on an irregular income budget for more than 20 years. The way you do that is to make a list of all of your bills, all the things you need to spend money on for this coming month. Not a hypothetical month, but this month. Then put a dollar amount beside each item such as food, electricity, water bill, rent or mortgage and that kind of stuff.

Then you look at that list and you say that if you have a crummy month and can only afford to do one thing, what would you buy? Then you put a one beside that item. By the way, that’s food. Once you eat and you are still having a crummy month and can only afford to do one other thing, what do we do? Put a two beside that, and by the way, it’s utilities. And just lights and water, not a $145 cable bill.

If you could afford to do one more thing, put a three beside that. That’s usually house payment or rent. One more thing gets a four put beside it, and that’s transportation such as a car payment or gas. One more thing gets a five and it’s basic clothing.

Those first things we knock out in order of priority are food, shelter, clothing, utilities and transportation. Fuel is part of the business. You need to separate the business from the home. If you have a business account, it works like this: The only things that go into that account are things when he is working self-employed. The only things that come out of that account are business expenses.

Then when you get ready to pull money from that account to spend it for personal things, you write a check out of that account as if you worked for that company, and you pay yourself. It doesn’t have to be a steady paycheck; you just pay yourself when money is in there.

You need to set aside a fourth of that money for taxes. Then you bring the money home and work a prioritized spending plan at home called the irregular income planning sheet.

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