Variable Income, Dreaded Red "Overspent"

Hey all,

I'm really struggling to feel good about my budget when my income is so incredibly variable and I seem to always be in the dreaded "Overspent" red when I try to anticipate expenses.

I guess my question is: what is the best way to handle expenses that you know are coming up, but there is no income to spend? I need to know whether I should be pre-budgeting and allowing myself too be in the red, or just not even touch my budget until income does come in ...

The cycling that I seem to be in is: income comes in, i spend it, then i retroactively update my budget ... unfortunately the age of my money right now is either 0 or negative and there is no way to get out of this cycle at the moment.

Thoughts?

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  • Orange Zebra said:
    just not even tough my budget until income does come in ...

     This. 

    However, you want to always be able to look at the budget when planning your spending, regardless of your income schedule.

    How are you paying for things right now until the Income comes in? Credit?

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    • Move Light Sound Life Not usually credit. It's just little bits at a time. 

      I think my problem is that I can't really get into the habit of a true zero based budget when I keep having to look at the future as a category based budget with artificial limits ... 

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    • Orange Zebra I do hope some more experienced people will come along and give you some better ideas, but I'm sure it feels unsettling in your situation. 

      The most common advice for dealing with variable income in YNAB is to try to normalize things - develop a monthly plan that targets your average (or maybe slightly lower than average) income level. Here is where you include those True Expenses, or larger transactions.

      Any income that's above that average gets put into a Deferred Income category. In months with lower than average income, you supplement from the DI category so that you can fund a normal month. 

      It may also be helpful to get yourself Buffered, such that you can budget a whole month at a time on the first of the month with money you already have then.

      This will take you out of the paycheck to paycheck feeling, allow you to make decisions looking at a whole/more structured picture, and probably calm your nerves. 😎

      However, getting there is the adventure. More to come.

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    • Orange Zebra So what I just described above is what the ideal situation looks like. However, if you don't already have reserves to make it happen, you'll need to figure out how to jump on the train while it's moving, picking up your luggage and supplies at future stops (analogies always break down somewhere, right?).

      You do this by waiting for your income to arrive and budgeting it when it gets here. While you wait, you can plan and organize your budget so that it's ready for money when it arrives. 

      1. Calculate your target "average monthly" income. The less certain things are, the more conservative I'd be.

      2. Establish your needs (fixed/variable/monthly/annually). Group them in those groups. I'd put monthly fixed first, like rent. Then do monthly variable, like electricity/groceries. Then non-monthly fixed, like car insurance/Amazon. Then do those True Expenses where you don't know the amount or the timing, like car maintenance/technology replacement/vet bills. 

      Obviously, I'm giving examples, so you make categories based on your own needs.

      3. Make your wants categories. Again, group as fixed (subscriptions of things that could be cut in hard times) and variable (spending money - games, treats, vacation, whatnot).

      4. Determine what numbers would go in these categories if you were able to budget your average income. You can do this on paper, in excel, or in a sandbox YNAB budget. Type those numbers in the category names of your real budget to remind you later. 

      5. Since you're building up to truly being prepared for a DI category, you may have some lower than average months. Think ahead about what categories should get funded first based on your priorities. It's helpful to put the categories in that order in your budget so you can just rip down the list, stopping when your TBB = $0. You can also put the date in the name, like 15th - Electric - $75(ish).

      6. Be patient until you get paid again, inputting transactions, reconciling, and covering overspending.

      You can do it!

      I hope that gives you a bit of direction. Ask any more questions you have. I'm sure others will give you some more ideas. 

      Like 2
    • I forgot #7!

      7. When you get paid, {if it's a high month, put the above average money in that DI category, then} go down your budget, typing in the budget cells of each category until your TBB = $0. Just pickup where you left off with the previous paycheck, and when you've completed your normal budget, put the rest in the DI category, or maybe a Next Month Money/Buffer category.

      Oh, regarding the Buffer.

      If you have obligations to fulfill at the beginning of the next month, you can sequester that money very specifically in a Money for Next Month category that will then get distributed when the month turns over.

      Arrange that category in good funding priority order - if you need money for rent on the first of next month, and that's a higher priority than your wants or even longer term, variable needs, then put it right under your bills/monthly group. Calculate how much you need and place the amount in the category title like the others. 

      The Buffer itself is all about timing your budgeting process to match the calendar and not your paychecks. It also protects you from the lovely Stealing From The Future design flaw.

      A usual way to acquire the buffer is by contributing money to that category so that you can eventually budget the whole of the next month with money you earned the previous month. Usually, I and others would recommend prioritizing this first.

      However, if you're down to the wire with variable income, that Deferred Income category can almost function the same way in the transition period you're in right now. 

      When you get more money than you need for your budget of choice in a month (normal average, bare bones, or you just have extra in groceries/dining out at the end of the month), put the extra in the Deferred Income category. You'll then have money to start budgeting the following month right on the first, without waiting. Then, any new income will take care of the rest of the month, with excess going back into the DI category again. 

      Organize it how you see fit. It may make more sense to compartmentalize money that absolutely needs to fund the next month separately from your deferred category, or it may make sense to combine that process for the time being. There will be a day that having them separate will make your life much easier. 

      Like 3
  • Orange Zebra said:
    what is the best way to handle expenses that you know are coming up, but there is no income to spend? I need to know whether I should be pre-budgeting and allowing myself too be in the red, or just not even touch my budget until income does come in ...

    This is a great question. First, it is stressful to be in this cycle. What you're feeling is valid. (Many, many of us are there or have been there!) And, you can move forward confidently. 🧡

    For the most part, we're taught that forecasting like you're describing (looking ahead, anticipating future expenses) is budgeting. When we forecast, though, we can't really grapple with all the variables (we're only human after all!). We end up making decisions based on incomplete or imaginary information—and we stress out.

    Instead, I suggest embracing YNAB's Method to get out of this cycle:

    1. Give only dollars you have on hand now a job. Then stop. Don't go in the red. This prioritize guide can help you determine how to budget the dollars you have on hand now.

    2. Create categories for all of those upcoming expenses and put goals in the categories so you know what you'll need to fund every month as more money comes in. Use that money to cover immediate expenses, then save incrementally for future expenses.

    3. When you need to move money to cover overspending, that's ok. It's good to be flexible! And, it's helpful to get in the habit of looking at your budget before spending. This practice can be liberating instead of restrictive (because, hey, it was you who decided how to spend that money! You're the king of your budget!).

    4. Each month, if you can set aside money for future months, do it. It will help you feel less stress over time to have extra dollars sitting in your account ready for next month.

     

    You asked if you should just "not touch your budget until money comes in." I think you should budget what you have on hand now, take Move Light's advice to prepare your budget for the incoming money by setting goals/etc., then actively engage with your budget as a partner until more money comes in. If you rinse and repeat, I think you'll feel less restricted.

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