A Feast or Famine Budgeting Plan

by Gary Foreman

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Whether you call it variable income budgeting or feast or famine budgeting, these guidelines can help you plan a budget for your unpredictable income.

Hi Gary,
How do you budget, not get into debt, and get out of debt when you have an unpredictable salary, such as a lawyer whose pay is based on contingency or a real estate agent whose pay is based on selling property sporadically?

It seems impossible to figure out a feast or famine budget.
J.D. of California

JD asks a good question. And it’s a question that effects anyone who can’t predict when and how much they’ll be making.

What a Budget Is and What It Should Do for You

We’ll start our discussion by considering what a budget is and what we want it to do. When most people think about budgets they picture a straightjacket to keep them from spending money. But that’s not true. A budget is really just a spending plan. (Now, isn’t that a much friendlier term?)

The plan will show what you expect in income and expenses for the budget period (usually one year). You’ll also be able to compare income and outgo to see if you’re planning on spending more than you make.

What else do we expect a budget to do? Well, once we get part or all the way through the budget period we’ll be able to compare our actual experiences to our plan, just like tracking a roadmap on a vacation. We’ll be able to tell whether we’re on course or if we need to make corrections.

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A Budget Is Critical for Those With a Variable Income

Now that we know a bit about budgets, let’s look at JD’s question. Most people have a steady stream of income. Yes, they could get a raise in October, but income will stay steady from week to week. Usually the biggest issue is what to do with the month that includes an extra paycheck.

With a steady income, the biggest trick is to try to level out expenses. Every family has a couple of expenses that only occur once or twice a year. Property taxes, holiday gifts and auto repairs are all good examples. You handle these items by estimating the yearly expense and then setting aside an equal amount each week or month (in a sinking fund) that will add up to the yearly amount.

But what about JD? What do you do when you get a big check one month and nothing for the next two months? Doesn’t that make using a budget impossible? No, in fact, it makes using a budget even more critical. Just as you’re more likely to use a roadmap when you don’t know where you’re going, you need a budget when your income varies throughout the year.

A 3-Step Strategy for Feast or Famine Budgeting

How do we do it? The strategy is simple.

1. Estimate your annual income.

We’re going to begin with a conservative estimate of our annual income. Put the emphasis on ‘conservative estimate.’

Suppose you’re a real estate agent, and you made $80,000 last year. But all of the income came in only a few deals. Take a realistic look at the year ahead. How much income are you likely to make if most of the breaks go against you? Half? Two thirds?

You decide, but remember to estimate LOW. This is the level of income that you’re counting on unless the year is a complete disaster.

2. Compare your estimated income to your expenses.

Now, take that income and compare it to your expenses. Ensure that both income and expenses are for the same period. Chances are that you’re planning on spending more than your conservative income estimate.

The first key to success is to reduce your expenses to match your low income estimate. No, that doesn’t mean you’re not getting the new TV. What it means is that if your income doesn’t exceed the low level, you won’t get it. Or any of the other extras. Keep a list of the items that are ‘nice’ but not necessary. When you get towards the end of the year and your income has EXCEEDED the low level, then go out and buy the items that you listed.

This does two important things. First, if you have a bad year (and we all do), you won’t get to the end and realize you’ve spent all your savings. Second, if you work on commission, you’ll be motivated to perform throughout the year to achieve the bonus goodies you’ve planned.

3. Bulk up your savings account.

Right now, you’re probably saying to yourself that we still haven’t solved the fact that income comes in without regularity. And you’re right! So let’s do that.

You’ll need to maintain a savings account large enough to cover expenses in the months that have no income. You know your business. What’s the longest stretch that you’ll go without income? You’ll need a savings account that equals your expenses during that time. Since you have a plan, you can estimate those expenses with some accuracy.

Some people keep the savings in their regular checking account. Others use a separate account. Whatever works best for you is fine. Just remember that when you do get that ‘windfall’ check, you must replenish the account for the next dry spell.

What if you don’t have any money saved? Then it’s going to be more challenging.

You’ll use borrowed money, probably credit cards, to cover the lean months. But it’s not impossible. You should be making more than your low level income estimate.

When you do pay off the credit cards, use any extra to fund the savings account. It may take a while to get your savings built up, but it’s essential to your success.

A Few Cautions Regarding Feast or Famine Budgeting

One warning. It’s dangerous for you to take on too many loans that require monthly payments.

Houses, cars and credit card purchases are tempting with their easy monthly payments. While no one expects you to pay cash for your first house, keeping those monthly commitments to a minimum is essential. Remember that you’ll increase the monthly minimum you’ll need to earn anytime you borrow to buy something. More pressure that you don’t want.

It’s also tempting to think you don’t need to worry about spending plans or budgets. Just close a couple of more deals and watch the income soar! You can do that.

But if you’re living on your credit cards today, you’ll still be living on them when your income has doubled. And you still won’t have a plan.

Can You Get Control of Your Feast or Famine Budget?

Sure! People who scramble for every transaction are usually quite creative. You’ll find that once your personal financial affairs are kept in order, all that creative energy can be used to close more deals. And isn’t that what you really want?

Thanks to JD for an excellent question.

Reviewed October 2023

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.

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