Apples to Oranges

You may have noticed we left the frequency of both expenses and earnings in whatever unit they currently come in. However a good budget tries to equal it out so that if something is costing you $120 per year you’re putting away $10 from a monthly income or $2.31 from a weekly one. So what does your income look like? If you and your spouse (or roomate, or sibling, or just multiple personal incomes) are pooling two types of frequencies, such as a fixed bi-weekly rate and a commisions only income, it will help to start with the fixed rate of income.

Let’s use some hypothetical numbers to practice the math on.

Scenario #1

• Income A – $2000 bi-weekly
• Income B- $150 bi-weekly + tips
• Total Annual Expenses = $65,000

Both incomes are bi-weekly but one is guaranteed to be making the bulk of their income via a variable amount in the way of tips. So we’re aiming to figure out what those minimum tips should be.

In the case of a bi-weekly salary you’ll simply take your annual expenses and divide it by 26(52 weeks per year, paid every other week) . If you’re expenses are $65,000 per year that means every bi-weekly paycheck will be met with $2500 worth of expenses. Income A covers $2000 of that. Income B wages covers another $150. Which leaves the tipped income to be a required minimum of $350 per 2 weeks. That can be further split into a weekly amount if necessary but you get the point.

Scenario #2

• Income A – $2000 bi-weekly, 2 unpaid weeks of leave
• Income B- Seasonal sales
• Total Annual Expenses = $65,000

Now if income A is a fixed bi-weekly salary of $2000, but with 2 unpaid weeks of leave per year which you intend to use. $2000 x 24(52 weeks per year / 2 weeks at a time – 2 unpaid weeks off) = $48,000 per year. If your annual expenses are $65,000 per year you have a deficit of -$17,000.

Let’s say Income B is entirely from sales at a farmers market between May and October. That’s 6 months to make $17,000. That comes to $2833.34 per month. In 2022, May- October have 26 weekends. Or roughly $654 per weekend in sales.

When you’re living in a situation where you aren’t making steady income throughout the year I would encourage you to try and move your fiscal year to begin at a custom month. One at the beginning of your high earning season so you can over fund accounts that you will later use to pay expenses until the beginning of next busy season.

Scenario #3

• Income A – $3000 monthly salary, 2 PAID weeks of leave
• Income B- $500 weekly wages, no paid leave
• Income Tax Refund- $2000
• Total Annual Expenses = $65,000

In this case we’d want to use a weekly format since there aren’t an exact number of weeks every month. And if you’re using your vacation weeks Income B is less $1000 for the year. $65,000 in expenses equates to $1250 per week. Income A’s weekly income is now a little trickier to calculate. Watch this. $3000 per month is $36,000 a year. Divided by 52 weeks in a year comes out to $692.31. Plus Income B’s $500 for 50 weeks of work averages to $480.77 each week. Amounting to $1173.08 So now we’re in trouble. That’s $76.92 less a week than we were aiming for.

If this household averages a $3000 a year tax refund then we can perhaps safely add $2000 of that to help balance the annual budget. I prefer not to count on these kinds of income but you may use your own judgement. For the sake of example we’re going to. Spread out weekly it adds $38.46 per week. Bringing us to a total of $1211.54. So now what?

Adjusting, Moving, Playing

If you’ve determined you’re not making enough to maintain the spending you’ve been doing you have two options. Typically a combination of the two is the most effective means of finding balance. Save your original information and copy it to a new worksheet to edit and adjust.

Trim the budget

The obvious answer is to find what can be done away with. It’s helpful to have the total amount per year you may be short. It scenario #3 that was $38.46 per week or $1999.92 per year. Amazing how those numbers add up isn’t it? So maybe you decide you can trim away $1000 a year between eating out, clothing and Christmas.

Supplement the Income

If you’ve trimmed your budget as far as you think reasonable then step two is to figure out how to supplement extra income. That could be overtime, a little freelance delivery work, babysitting or pet sitting, resale, or a whole second job. It’ll depend on how much you need to make up for. Continuing with scenario #3 we’re only looking for an extra $1000. Or less than $100 per month. Or $20 per working week counting those two weeks off. Break it up. Make it manageable. Record your total amount needed for the year and keep track of deducting it.

Expenses per paycheck

Now that you’ve figured out the lump sums of income to expense in a uniform unit, it’s time calculate how much per pay period you should be putting away for each expense.

You should have your spreadsheet or worksheet that still has the yearly totals of all your expenses. So you’ll simply take each yearly total and divide it by whatever your pay periods are.

For example, if your pay periods are weekly and your rent payment is $1200 per month, you’ll take your yearly total of $14,400 and divide that by 52 weeks. Each paycheck you put away $276.92 for your rent. Some of you may find you can make these payments immediately to the landlord or rental company. Sometimes you’ll need to transfer that amount into a seperate account or withdrawal it in cash until the full amount is saved up and/ or the bill becomes due.

Repeat this with all of your expenses and note next to each expense what the amount per pay period is. This is your checklist every pay day.

Bring everyone on board

Next to finding out you may not be earning as much as you’re spending this is the hardest part. Particularly if finances have been a strain in the household already. But bringing in a spouse, or any other relationship that you’re financially entangled with, is paramount. You cannot pull this off if the other person doesn’t know what’s going on.

Bring your original information and the edited budget. Share what you’re currently spending and earning and then share your solution to the problem. They’ll need to see the numbers you’re starting with to have a real grasp of the situation and why it’s important to economize expenses and prioritize savings accounts going forward.

If you feel confident in keeping your accounts straight and budget categories recorded then you’re all set. Congratulations!

If you’d like a few more tips on how to execute this new budget please continue to part 6.

Tell me what to do with all these numbers!