Budgeting to Pay Off Debt (on a varied income)

I've been wanting to write about this for the past couple of months, but I haven't taken the time to sit down and put together a post about it. Let me forewarn you that this may be completely boring if you're not into budgeting and numbers, but this topic has actually been so exciting for me! hahaha

So, Jerry and I are on a budget right now in order to pay off some credit card debt. First, the back story:

For much of my life, I've been pretty good with handling money. My parents have always been thrifty, and taught me not to spend more than I can afford. My mom loves garage sales, and I used to go with her all the time. Once you see things at garage sales for a tiny fraction of the cost they are at a retail store, it's so hard to spend the money in a store when you can get it dirt cheap.

In high school, I bought clothes from the thrift store, too. My style was--well, let's just say it was "unique". I was basically a hipster before being a hipster was a thing. I love anything retro, and I probably bought clothes that used to belong to someone's grandmother.

1998. I still remember the feel of those polyester pants and velour shirt.

I didn't get a credit card until I was in college; and even then, I was very responsible with it. I asked for a $500 limit so that I wouldn't go overboard. My mom had ingrained in me that I should never get in over my head with debt. I didn't really learn about credit scores until Jerry and I applied for a loan to buy our house, but I was happy to see that my credit score was good--from the credit card and from paying on my student loan.

In retrospect, I'm pretty sure that my having bipolar disorder would cause me to spend money very impulsively. When hypomanic, I would get really excited about starting a project; then I'd use the credit card to pay for materials, telling myself I would pay it off at the end of the month (I usually didn't).

I would also get really excited about spending it on other people--giving gifts, taking people out to eat, hosting parties, and things like that--and again, I would just put it on the credit card and worry about it later.


Our income is SO varied, depending on whether Jerry works overtime and for how many hours (he is paid hourly). So, inevitably, there are weeks where his check is really low, and before budgeting, that would always throw us off on paying bills. We relied on the "big" weeks to get us through after a "small" week's check. Also, I am paid on the 30th of each month--so, we would rely on my check to cover anything we couldn't pay from Jerry's weekly checks.

Having a varied income has always made it really difficult to stick to a budget. When I don't know how much we are going to earn each week or month, how do I plan for it? Jerry and I had tried several times to budget our money, but it only lasted a few days because it was too hard to plan for things.

Anyway, debt didn't really become a problem until after we were married for a few years. Jerry's employer decided to cut all overtime hours, and our combined income (I was working for an OB/GYN at the time) was not enough to pay bills. So, we starting using the credit card more and more; and then about a year later, Jerry's employer reinstated the overtime. We were earning enough to pay our bills, but not enough to pay the debt we'd gotten into.

I won't write out the rest of the long story, but in 2014, when we built our garage, we had to take out a loan. And the credit card was still a problem. We were living paycheck to paycheck--whatever we earned in a week would be gone by the end of the week. I did set aside money for our house payment and car payment every month, but the rest was just paid on an as-needed basis every Friday.

As soon as we paid off the garage loan in December 2016, our furnace quit. To replace it was $5500, and we had to borrow money for that. I felt like we would never get ahead! When we decided to start this budget, our credit card/loan debt was about $14,500--a number that seemed totally overwhelming to try and pay off.

Our current income is definitely enough to live on, but we were still spending more than we were making, and we weren't sure where our money was going. Again, trying to stick to a budget each week or month was so difficult because of our unpredictable income.

I finally starting reading websites for ideas, and I found a way of budgeting that was perfect for us. For the life of me, I cannot remember what it's called or where I read about it. (Edit: I found it! Here is the site where I got the idea. It's called a zero-sum budget.) But here is how it works:

I calculated a "bare bones" figure of what our mandatory monthly bills are: house, car, insurance, property taxes, utilities, food, gas, medical co-pays, and the minimum payment on our credit cards. This would be the minimum amount that we would have to earn to be able to live on and pay our bills: $3300. Anything above that is extra.

Once I calculated that amount, I used Jerry's and my tax forms from the last several years to figure out what our average monthly income is. (Oh! I also applied for an 18-month 0% interest credit card and I transferred our balances from other cards to that one, to consolidate and obviously save on interest while paying it off. Thankfully, I have always had excellent credit, so there was no problem getting the card.)

Here is where the budget gets difficult to explain, but I'll try...

We now start each month (on the 1st) with $3300 in our checking account (money we earned the previous month). That amount is enough for us to live on for the whole month (if only paying the minimum on credit cards, and not spending on anything extra). We use this money to pay for everything for the month.

To use June and July for an example: In June, we started the month with $3300 in a checking account and $0 balance on my AmEx. During June, we paid for our bills, groceries, gas, etc., from that $3300 budget. Meanwhile, we set aside ALL of our income in June.

On June 30th, we made sure all of our June expenses were paid for (including necessary extras, like a couple of gardening tools we needed). Then, we looked at our income from June--let's just say it was $4300--and we move $3300 of it to our checking account to use for the month of July. Then we take the leftover income from June (in this example, it would be $1000) and pay down our debt.

(Side note: I use my beloved Delta American Express card (that we pay in full at the end of each month) to pay for as many bills as we can, as well as our food, gas, etc. Then I pay off the AmEx with the portion of the $3300 set aside for such. This way, I can earn a lot of SkyMiles without acquiring more debt.)

Does that make sense?

Since our bare bones budget doesn't allow for "fun stuff" that we may want (Jerry's craft beer, the kids' toys/games/whatever it is they want, my future travel expenses, etc.), the four of us each get a cash "allowance" on the first of the month to use however we want (or save it for later--I'm currently saving mine for when Jerry and I go to Portland).

I was looking for pics for this post, so I typed in "money" in my Photos app--
and this picture popped up! Hahaha, no memory of what this pic was about.

We also agreed that any bonus money we earn (if Jerry gets a bonus at work, or if I write a sponsored blog post, or something like that), we will divide it up as a family to add to our allowances. Or, we may decide to use it to do something together as a family.

Today starts our third month on the budget plan, and it's been great so far! I write out a weekly menu on Fridays, and then go grocery shopping (just once for the entire week). I make a list for the grocery store and I don't buy a single thing that isn't on the list. I'm kind of amazed at how many things I ordinarily would've put in the cart impulsively.

At Kroger, you get 2x the fuel points (discount on gas) by shopping Friday-Sunday, so by doing my grocery shopping on Fridays, I am also racking up fuel points--this month, we get $1.00 off per gallon!

Having a particular amount that we are "allowed" to spend on groceries and gas really makes me think twice about buying things or going places. I try to plan my errands around the time/place that I have to go anyways--like my therapy or doctor's appointments--in order to save on gas.

We haven't dined out even once since starting this budget, which is great! Looking back at last year, I'd bet the majority of our extra money went to dining out. Jerry's and my anniversary is on the 16th of this month, so we are going to try to fit a dinner out (with the kids) into our grocery budget.

It sounds like this whole thing would be miserable, but it's actually really fun--I like the challenge of it, and it feels fantastic to pay such a large sum onto our debt each month. Being a numbers person, of course I made a nerdy spreadsheet, and I love filling it in every Friday. Jerry said he really likes living on the budget, too. It has made us get creative with the way we do things and the things we spend money on.

The kids are loving it because they get an allowance now--before, we would just buy things they wanted (not always, but if it was something that they asked for, we might buy it for them). Now, they are learning the value of money and that spending $4 on an ice cream from the ice cream truck isn't worth it. We still pay for their necessities, of course, but other things have to be paid for with their allowances. (And they have chores they have to do in order to get the allowance.)

Most of all, this whole budget has made us realize what things are "necessities" and what things are just "wants". It's very helpful! And I'm much more aware of where our money goes. We used to spend it on impulsive buys, but now we are really putting thought into what we want/need. And if all goes as well as the last couple of months, we'll be credit card debt-free in about a year!

40 comments:

  1. Oh I looooooove budget stuff. We started our marriage using the Dave Ramsey system of cash for various categories- groceries, personal allowance, home items, etc. Then we stopped doing it for a few years and I just always knew we were leaking money here and there; mostly on stuff I couldn't remember.

    A few months ago I started the cash system again and I love it. I like knowing where our money is going and working to stay within the cash we have. Weird, but I like that feeling of self-control when I decide not to buy something we don't have cash for. After "splurging" for so many years it is nice to rein it in.

    Love this post!

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    1. Yes, the feeling of self-control is the best part! A lot of people have recommended Dave Ramsey to me, but I just haven't been reading books lately, so that's how I found this system on the internet. It's been perfect for us!

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    2. I read the Dave Ramsey book several years ago. When I recently re-started our budget I listened to a few of his podcasts while I was cleaning my room or whatever. Great little segments where he just chats with/problem-solves with callers on his radio show. I like them for the inspiration and miiiiiight go to one of the Financial Peace University classes in our area soon. Might.

      Anyway- if you're not into the books maybe a podcast here or there would be fun to listen to. Again- not because you need a new system or something, but because they are inspiring:)

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    3. We got out of debt (except the house isn't paid off yet) using Dave Ramsey, too. We took a class together called "Financial Peace University." It changed our entire world view and has decreased our stress level tremendously. Budgeting is a good thing, for sure. Zero-based budgets and cash rock my world.

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  2. I really love budgeting too. If I were you I would get a job somewhere with a reliable income to take the stress out of not knowing how much your husband will be making. Plus you would pay off debt even quicker. Also I read that in order to prepare for retirement one should always save 20% of their paycheck for later no matter what.

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    1. There is no stress about how much Jerry makes, because we start the month with the same amount, regardless. That's why I love this plan! And this budget is for our take-home pay (the money we bring home after paying into health insurance, income tax, and retirement).

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    2. That makes sense. I just remember you talking last year about finding a job to go to while kids are in school. I guess that would have been very high on my list if I am trying to pay off money quickly. I am glad this is working for you guys though.

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  3. My hardest area to budget is groceries. Monthly, how much do you spend on groceries for your family of 4? When I started tracking our groceries bills it was close to $500/month for our family of 3. Yikes! Any advice or ideas would be welcomed...or even a post how you meal plan :-). Thanks!

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    1. Oh, that's the hardest for me! I used to go to Kroger several times a week, and buy things that were on sale or just that we felt like having that day, etc. I was spending way too much on food, and then throwing out a lot of things we didn't use (bread, milk, veggies, etc). Now that I plan things out, I spend far less. I wrote the budget for $100/week, which is $433.33 per month. I know grocery prices can vary wildly depending on where you live; but for us, that's a decent amount as long as we don't go out to eat. The recipes that I list on my blog are my family's favorites, and they're all pretty cheap! We don't eat a ton of meat, which helps--I will make meatless pasta dishes, or dishes with beans and rice. I LOVE casseroles and all-in-one skillet meals, which stretch a small amount of meat a long way. Also, we usually have one day a week where we have a lot going on, so we'll have a quick bowl of cereal for dinner (which is dirt cheap). Thankfully, Jerry isn't picky at all about what we eat, which makes it easier to meal plan!

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  4. This comment has been removed by the author.

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    1. Hey! This comment was sent to my email before you deleted it. I'm not sure why you deleted, but I just wanted to say thank you!!

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  5. I would also like to know how much you budget for groceries! That is always my hardest part and we usually throw in the towel after a couple days. Also, would you mind telling how much you give the kids for their allowance?

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    1. I budgeted $100 per week, which is $433.33 per month. That figure has worked pretty well for the last couple of months. I'll try and write a post about how I meal plan and stay within budget!
      For allowance, we give the kids $10/week (so, $40-50 per month, depending on how many Fridays are in the month). In June, I gave it to them each week. July and August , I gave them the whole month's worth on the 1st. I think I may start giving them $30 in cash for the month and depositing $10 in their savings accounts. They're not great at saving money on their own ;)

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  6. Thank you for sharing! My husband also has a widely varied income, so budgeting has never worked well for us either, but I may give your method a try! I agree with other commenters, budgeting for groceries is so hard because it can also vary so much depending on what you make each week. I like the idea of being CC debt free in a year or two (we had similar balances); that's so much faster than any consolidation loan we have ever taken!

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    1. Budgeting for groceries was always the thing that threw us off track! I like having a monthly budget ($433.33) instead of weekly (because of the varied income), but I try to keep each week at around $100 so it lasts through the month. The whole family is excited about paying off the debt so that we can use that money for things we really want (Jerry wants to buy a truck, for example). Because of that, nobody is complaining about doing things cheaply now. If we can stick this out for three years, we will have our debt, our car, AND our house paid off! (Read about the "snowball" method of paying off debt--that's how I calculated the time frame). Good luck!

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  7. Hey, I was just wondering how much of an allowance you give to your kids? This is something I struggle with, how much is enough, how much is too much? My kids do have chores and help out around the house, I just never know how much to give them.

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    1. I give them $10 per week ($40-50 per month, depending on how many Fridays are in that month). There are certain things they HAVE to do every day--like make their beds, for example--but then they know that if I ask them to do other things (like mow the lawn) they have to do those to get their allowance. When we get our debt paid off, I'll probably start giving them more (as teens, they'll want to go out with friends, so $10 per week probably won't go very far!).

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  8. I love this. I think the system you are using is called You Need A Budget (YNAB), I've seen other bloggers talk about it. We have very tentatively talked about using this method, but it seems so scary for some reason! Thanks so much for sharing!

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    1. I think it feels much more secure! I already know that we have this month's bills paid, so I don't feel anxious about it--it's a nice feeling! :)

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  9. Great post! I'm a numbers person so I'm totally geeking out right now! ;) Thanks!

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    1. Hahaha, reading about budgets is my kind of fun! ;)

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  10. I love working with numbers too and loved this post! I'm kind of a visual person and am wondering if you would consider posting a sample spreadsheet and how everything is broken down. (It doesn't have to be your own but just an example?)

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    1. Sure, let me make sure it works out this month again, and then I'll post more about it! So far, it's been great, though!

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  11. I went through some very difficult times after my divorce. I started doing a budget then out of necessity and I am still living on a budget to this day. It helped me and my current husband get out of debt, put a down payment down on our house and buy all new furniture. I have my house payment, our car payments and an RV that we make payments on, but I still pay off my credit card bills every single month, and have not paid a penny of interest on a credit card for over 2 years. It's not always easy, but at the end of the day, I know that I am better off without the things I can't afford, than living under debt and all of the stress it causes me!

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    1. That's great! I hope to get to that point soon. Congrats on staying debt-free!

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  12. My husband is a union business agent now but before that he was a steel hauler so his income varied from one week to the next based on how many loads he got and how much they paid. Now that he is a business agent, he counsels his members who work in places that do pay overtime, especially in the construction trades or industries that supply things to other bigger industries, to live on their regular pay and to bank their OT. Some have taken his advice and told him months or years later how much that setting aside the OT helped them when they got laid off for the season or when an emergency did arise, they had money to use. I just wish I was as good with money as my husband is but he's my personal money manager now!

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    1. That's great advice! When I got pregnant with Noah, Jerry and I wanted to see if we could get by if I was a stay at home mom... so we started banking ALL of my checks and didn't touch them. We wanted to see if Jerry's were enough to live with. And it worked out! Which was awesome, because we had a lot of money saved up over those nine months :)

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  13. I actually find stuff like this very interesting. I've never heard of this particular budgeting method, but glad you found something that worked! I did the 12 month 0% BT thing last year and unfortunately haven't been able to pay it down as much as I'd like, but I just got approved for another one, so moving it one more time and am working diligently to get rid of it for 2018! Good luck with paying down the debt and finding some thrifty habits that will likely continue!

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    1. I switched mine before, too, when I didn't get it paid in time--thankfully, my credit is good enough to have that option. But it's nice to not pay interest at all. I'm super determined to get it all paid before my 18 months is up!

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  14. Please start college funds for the boys and IRA's for you and Jerry. Plan for the future, just not spend in the moment.

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    1. I guess I assumed everyone would know this is net pay I'm referring to... after our deductions. We've been planning for the future since before we even got married.

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    2. College funds and IRA's aren't something that is a deduction for everyone. Money is taken out for my and my husband's 401K as a deduction at our places of employment. Our children's 529 college funds and my husband and my own IRA's are things that we put money in ourselves outside of work. I can't say I've ever heard of college funds being set up through a work deduction before taxes. This is done with our money that is brought home. Maybe set aside money for life things such as the braces. These things can be planned for.

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    3. It was actually the braces that knocked some sense into me and gave me the push to make financial changes. Of course I wish I had money set aside for things like braces--clearly, I screwed up all these years. Now that my mood is stable, I am able to think more rationally (rather than impulsively), which I why I set up the budget. And I'm proud that I've managed to stay in control for over two months now! We are much better off than we were two months ago, and I'm constantly learning what works and what doesn't. Thanks for your input.

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    4. Good....I'm glad...it's never too late to get in better financial shape...most people need to, they just don't want to do the work...congrats to you and Jerry for making the commitment.

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    5. I second the college fund planning. My second kid has one year of college left, and we did not save enough money. I always said I would not strap my kids down with crushing student loan debt. Both my kids went to state colleges and lived at home, and I was still appalled at the cost. #2 is going to have about $25K in debt for his final year, the college funds ran out. You have no idea what budgeting is until both you and your spouse are self employed.

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  15. My husband and I don't have kids, but we also have an allowance system. As long as we make over a certain amount per month, we each get an allowance. That way, we can have some fun money and not feel like one gets more "stuff" than the other. It's been working for us for years!

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  16. Hi Katie - I've been reading your blog for a while - I first discovered you on Sparkpeople - I think this is the first time I've commented though? Thanks for all your posts - but this one in particular hit home - I just bought my first house and it ended up being a money pit - I was wondering if it would be possible to post an example of the spreadsheet you mentioned?

    Even if its not possible - Thanks!!

    Erin

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    1. I will try to post about it soon! I've since made it much simpler, and it's easier to keep track of. It's still working out great though!

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  17. I am a budgeting and numbers nerd too. My husband and I do have a pretty fixed income so I have a weekly budget set up. I've split all our bills and expenses into 4 parts and then each week of the month, I pay those bills with the paycheck that comes in. Even with this system, we are still living paycheck to paycheck and, depending on how much that week's bills amount to, sometimes there is a little extra money and sometime's there's not. I like this "bare bones budget" idea. However, I do have one question. For someone like me, who is always waiting for that next paycheck to come in, how do you accumulate the initial amount of money? (The $3300 in your explanation?) I'm unsure how to start this method without becoming behind on anything/still being able to pay everything when it is due. Thank you in advance for your guidance. I absolutely love your blog and am so grateful for the regular dose of inspiration, knowledge and power I get from reading your posts.

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    1. That was the hard part! But we were very lucky that we actually started our budget during a month that we made a LOT more than usual--there were five pay periods (Fridays), Jerry worked a lot of overtime, and I wrote a sponsored post. So, instead of taking that extra money (from June) and paying it toward our debt, we just used it to start the "bare bones" budget in July. If we hadn't had such a great month (as far as our income), we would have had to save up for a while to get that $3300 to start the new budget.

      I would suggest saving all of the money from the fifth pay period every few months... treat it like a four-week income, and then save that fifth paycheck somewhere until you have enough for your "bare bones" budget. For example, Jerry gets paid on Fridays, and I get paid on the 30th of the month. In June, there were five Fridays, but in July and August, there were only four. So, we could treat June as if it only had four Fridays, and just sock away that extra paycheck. Does that make sense?

      I know exactly where you're coming from, because that's exactly how we were spending before, too! Living paycheck to paycheck is stressful... and this new budget has been such a relief!

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I'd love to hear from you! I read all of my comments, and if you have a question, I do my best to respond; sometimes, however, I get busy and forget to go back to reply, so if it's important, just email me! :)