Budgeting when your income is based on full commission sales

[cristina47454]

DH started a new job a couple of weeks ago, selling windows. Full commission. The good news is that he is doing GREAT out the gate. The bad news? Well, it's full commission.

So please help me figure this one out. He gets half of his commission upon signing of contract, the other half upon installation (about 6 weeks later). This means that for sales he is making now he will be seeing the back half in November.

Sept and October are kind of stressful because he is ONLY receiving front halves. But our Sept bills are already paid (phew) and we are stockpiling for Oct's rent even as we speak. Sept backhalves have Nov bills accounted for, and assuming Oct is a good month, December's bills will be covered too.

Still with me?

We looked at the sales numbers for his division. It looks like Dec, Jan, Feb, March are the slowest months. But even the worst that somebody did last Jan was $2000. And if you factor in back halves from the previous November the guy made closer to $5k.

So I'm trying to rework our budget to take into acct this feast and famine cycle, but I don't know what income numbers to use. Our bare bones budget is $3400/mo. This includes cc mins (scary), but not a snowball amount. Also does not include sinking funds for things like ins (which we just paid), oil (which we will have to pay), or Christmas (!).

Honestly I am considering applying for fuel assistance, bcs although dh's job has a lot of earning potential, winter will slow down quite a bit and we'll be potentially in a very precarious financial situation. But that's a topic for another thread...

So for now...should I stop the snowball, and just stockpile cash until we are through the winter? Like I said, Sept's sales pretty much have Nov's bill paid...so come Nov, if he makes sales, do I stockpile all of that as well?

At what point is it "SAFE" to throw the snowball again? Or buy Christmas gifts?

Should we use that one guy's lousy month where he earned $2k and assume that is the worst dh will ever do? And keep $1500/mo x 4 (dec,Jan,feb,march) in an EF to cover any shortages?

Anybody BTDT? I really am at a loss as to how to plan for something so unpredictable. Especially in this economy. Honestly, it kind of shocks me that people are even buying windows, let alone high-end ones!

TIA

[ltlmrs]

DH's job is similar, though it's not sales. He actually has the potential for no income for a couple of months (though usually he will bring in something) and some companies he works for pay regularly while others pay maybe once every three months.

Here's what I've done and it has helped some. The biggest problem for us before was that he did not average his income to meet minimum expenses, so we ended up in debt. Now that his overall income (yearly) is greater than our minimum expenses, we're finally able to start digging out of debt.

Anyway, I work one month ahead. That is every penny we get in a particular month goes into a savings account. At the start of the next month I take out the minimum (without snowball) we need and 'write' myself a 'paycheck.' Any money left in the savings account then goes towards the anticipated 2 months of no income. Once I have three months worth of income in the savings account (the next month + anticipated no income months) I put money into sinking funds and the debt snowball (this assumes our $1000 EF is filled). I don't have a sinking fund for oil changes and insurance because I factor those into our minimum monthly expenses since without oil changes/insurance DH wouldn't be able to get to work. I use a cash envelope for oil changes and when we need one the money is there. I do have a sinking fund for tags/registration, medical expenses, and presents. Ideally, I'd figure out the amount I need each year and divide by month and contribute to the funds monthly, but our priority is being able to meet those monthly expenses when there's no income, so I'd rather not get my supplements or give presents than not have money to pay the bills, kwim? I have been known to pull money out of the EF for our tags, which I'd like to avoid doing in the future (I'll probably start an envelope for that too, like with the oil changes).

BTW, I'd assume that the lowest commission your DH will get is $0 and work from that. I would not feel comfortable spending money on Christmas or paying off debt unless I knew that we could cover at least one or two months of basic necessities out of our savings. If DH had a regular 9-5 salary job, then we'd probably follow the DR baby steps.

[phathui5]

http://www.daveramsey.com/article/ho...ney_budgeting/

[cristina47454]

(when I said oil, I meant for heating)

Thanks for the detailed response, and for the link. Baby is yelling for me...I'll be back later and read more carefully.

[zebra15]

I only have a minute but when I worked commission I never used anyone elses numbers. You have to accept that "I could end up with ZERO income" and I planned for that. You need to have a system that works for your family. You also need to be prepared for no income not only for one month but there is a possiblity of no income for several months.

[BetsyS]

I don't have much more advice than beyond what's given, but I second and third and fourth the idea of saving for the months of low and no-income. Don't get into the mistake of spending up in the big months if you don't have the savings for the minimum in the bad months. Saving is really important.

[ltlmrs]

Originally Posted by phathui5

http://www.daveramsey.com/article/ho...ney_budgeting/

I found this useful only at the beginning stages of irregular income. That is, during the first month. I made the mistake though, early on, of filling the $1000 EF once I had the minimum expenses met and then applying money towards the debt snowball. Well, a summer of no income (that we didn't anticipate) hit and we were even more in debt than before.

[cristina47454]

Thanks for the advice, all. I am SO itching to get my debts down, but I guess I'm going to have wait. Sigh. Do you think three months savings is enough? When do you think I can start paying down debt??

One of my credit cards disappears next month, as does a medical bill. That frees up $250. Do I really put that into savings instead of throwing it at the next card in line?

[cristina47454]

Originally Posted by ltlmrs

I found this useful only at the beginning stages of irregular income. That is, during the first month. I made the mistake though, early on, of filling the $1000 EF once I had the minimum expenses met and then applying money towards the debt snowball. Well, a summer of no income (that we didn't anticipate) hit and we were even more in debt than before.

So you are saying you had your $1000 Ef in place and 1 month worth of expenses saved up before you started paying down debt. And that ended up getting you into trouble. How many months should you have had saved up? I can totally see making the same mistake as you! I am SO impatient to get the ball rolling on debt repayment. We have been treading water for far too long!

[GuildJenn]

Originally Posted by cristina47454

Thanks for the advice, all. I am SO itching to get my debts down, but I guess I'm going to have wait. Sigh. Do you think three months savings is enough? When do you think I can start paying down debt??

One of my credit cards disappears next month, as does a medical bill. That frees up $250. Do I really put that into savings instead of throwing it at the next card in line?

I don't have a lot of personal experience with the income side but I would say definitely yes. While you're in your first year+ of this I think that sounds really prudent. If there are no sales or very few sales in the lean months that impacts on the back halves.

[tracymom1]

DS his a real estate agent and so far this year has had 1 closing. That means for 2010 we have made about $3,000 total. We are living on credit cards. SAVE whatever you can, whenever you can!!!!! When there is no regular paycheck, you NEVER know what can happen. We were making over 6 figures for several years and now NOTHING!! And DH refuses to get another job, but that a different subject,

[ltlmrs]

Originally Posted by cristina47454

So you are saying you had your $1000 Ef in place and 1 month worth of expenses saved up before you started paying down debt. And that ended up getting you into trouble. How many months should you have had saved up? I can totally see making the same mistake as you! I am SO impatient to get the ball rolling on debt repayment. We have been treading water for far too long!

My goal now is to have four months total saved up: 1 month ahead and three months in an EF. Ideally it would be 6 months, but with DH's income that's not realistic.

What happened was that when we got married I quit my full time steady job to move to the city where DH was studying. I could not find a job in the new city and we ended up going through all our savings within the first two months. I had some debt going into the marriage, but then we got into even more debt after our savings ran out. DH and I both finally got jobs that were sporadic income and after our basic expenses were met starting paying down the debt. I got pregnant and had to quit work and then a week after I quit DH got laid off. We had three months of no income my last trimester and we lived off of credit cards. If we had planned ahead and rebuilt our savings we could have met our minimum expenses those three months. Well, by the time Ladybug was born and DH had a job again, he was earning less than he had been previously and by that time the ccs were maxed out, we had a huge deductible to pay and we started missing payments (because that $1000 DR EF was not meant to support someone but provide money for unexpected expenses like car repairs). Long story short, knowing that DH's job had sporadic income, if we had saved instead of paying off debt, we would have been in a much more stable situation. Instead, I assumed that he'd always be bringing in something (the job is stable, the income not so much) and we wanted to get out of debt ASAP. As we missed payments our interest rates shot through the roof so whatever progress we made in lowering our min payment because of paying down debt ended up being useless.

To answer your other question: definitely do everything possible to bring down your minimum monthly expenses. Fewer min payments? Great! Less on groceries! Excellent. Get that figure down as low as possible so that you can build up your own savings that will tide you over should your DH not have income. If he does make $2000 during the slow month, fantastic! By that time you may have enough in your savings that you could apply that to the snowball, so long as you always have at least 3 months (preferably however long the 'slow' season lasts) worth of expenses saved up.