How to deal with variable income in the budget

Question

We have a budget planned out for various categories, and in order to make ends meet we count on child support for my wife's child from a previous marriage. However, lately we have not been receiving this amount. How do we deal with this in the budget?

My wife has just been "borrowing" it from our savings, but I don't think that is reasonable given that I find it highly unlikely we will ever be able to recover it. On the other hand, she doesn't think it reasonable to cut out of her budget and cutting it out of the budget for the kids (which is where it really should be going!) isn't reasonable either.

Answer 1

This is the same as any case where income is variable. How do you deal with the months where expected cash flows are lower than projected?

When I got married, my wife was in the habit of allocating money to be spent in the current month from income accrued during the previous month. This is slightly complicated because we account for taxes (and benefit expenses) withheld in the current months' paychecks as current expenses, but we allocate the gross income from that check to the following month for spending.

The benefit of spending only money made during the previous month is that income shocks are less shocking. I was working for a start-up and they missed payroll that normally arrived on the first of the month. Most of my co-workers were calling the bank in a panic to avoid over-draft fees with their mortgage payments, but my mortgage payment was already covered. Similarly, when the same start-up had a reduction in force on the first day of a new quarter, I didn't have to pull any money from savings during the 3 weeks I was unemployed.

In the end, you're going to have to allocate money to the budget based on the actual income--which is lower than your expectations. What part of the budget should fairly be reduced is a question you and your wife will have to figure out.

Answer 2

You have several choices:

• assume it will never be there, and when it does appear save it for something like college.
• assume it will always be there, and pull it from savings when it doesn't appear.
• estimate some amount in between and save some for the months it is missing.

If you can't count on it being there every month, and there is no hope of getting it via the courts, then it appears you need to assume it never will be there.