Budgeting for the Unexpected (Commission Jobs vs. Salary) | Personal Finance & Lifestyle | Yakezie Forums

Well, for me any unexpected income or side income (from writing for example) goes straight into a tax exempt municipal bond fund with the goal of creating a new source of passive income without incurring taxes, and offering the potential for capital appreciation. But that's just me.

I treat unexpected or "extra" income the same way I treat "regular" income — basically just following along with what I have planned. I don't see why it needs to be treated differently than income from a job. Although, I do usually just blow small amounts of money that I get as gifts, because I figure they're intended to treat me, and I'm all for that ;)

I've heard a lot of different ways to do this – some take the lowest month on record for variable income and live off that, save the rest.  

With me for gifts and things, I usually have the desire to send it to debt, but I got yelled at one christmas for doing that.  Now, I try and buy something i've been wanting for a while with about 10-15% of it, then save/pay down debt with the remainder.

Jeff @ Sustainable Life Blog said:

I've heard a lot of different ways to do this – some take the lowest month on record for variable income and live off that, save the rest.  

With me for gifts and things, I usually have the desire to send it to debt, but I got yelled at one christmas for doing that.  Now, I try and buy something i've been wanting for a while with about 10-15% of it, then save/pay down debt with the remainder.

I make it very plain that any cash/checks that I get for gifts will likely be added to the overall pool of cash and used to pay a bill.  But, most everybody gets me amazon cards anymore, so that the yelling part isn't usually a problem. 

Any extra income/bonuses/etc that we get get added to the incoming pool and go out based on our budget.  If our budget is full and we still have extra, it goes to the first bill on the list of our debt snowball.

Post edited 11:45 am – October 13, 2011 by JT_McGee

I put self-employed people and business owners in their own category, then commission workers in another.

Commission-based jobs require that you have an "income emergency" fund, with the whole of your monthly income going into it.  If you pull out 85-90% of your average after-tax income each month to allocate in your budget, then you should be fine.  The extra can go to other savings, or wherever when you rebalance it once a year.

Self-employed people/business owners face another problem.  I used to ("used to" being very important here) work with small business people, and I can tell you exactly how every single one that failed, failed.  All of them considered their income to be business revenues minus total expenses each month.  Basically, every single ounce of equity was drained from the business.  What would happen is that when things got rough they would cut back on long-term investments in the business in order to boost their income.  That's the most expensive way to "borrow" money, but none of them "got it."  

They could just cut, and cut, and cut more from expenses that were not completely 100% necessary to keep the lights on and still get by just fine.  Being in the business of selling a long-term investment (marketing), I can't even begin to tell you the amount of people that literally DRAINED their businesses of any equity to eventually find that revenues slowly decreased even as the economy turned around. Nothing is more annoying than to have a customer cut back on a very fundamental part of their business because "Sally's going back to college" or "our car needed a $3,000 repair last week." That $1,500 pimped out apartment or $3,000 car repair sure cost them a lot of money, but few ever realize it because business owners that fail never count lost revenues as an expense.  Drives me up the wall.

And that's the end to my rant; I could probably write a book on the insanity of small business owners.  Those that want to be big businesses become big businesses, those that want to stay small forever usually go out of business due to things that are, in a large part, in their control.  

Since my wife and I are self-employed most of our income is unexpected income.  We can't really predict how much we will make in a given month. If we have a much better than normal month we put extra in savings and maybe have a small splurge.

I'm not sure what we do would be called budgeting for unexpected income.  We don't have that much to start with.  The unpredictable income we do have is generally from interest and dividends (which in reality isn't all that unexpected) – and it always goes back into some form of investment account.

The only other (thank you Crystal!) income we have now if the trickle we are starting to get from FMV.  Half of it goes right into the business account in case we need it to pay taxes.  The other half will be used to improve the site – new design, marketing, software and etc.

Thanks crystal!

Budgeting in the Fun Stuff said:

Jeff @ Sustainable Life Blog said:

Nice system set-up crystal  I'd like to set up something similar for when I get married, but I'm not sure the percentages or the amounts quite yet.  

My husband and I looked at our priorities and that's just how the chips fell.  :-)