Saturday, February 28, 2015

How to Budget With a Variable Income Part 1: Tax Return or No Tax Return?

Image source:  Google images
First a disclaimer:  I am not a financial adviser.   Nor am I a CPA or other person who works in the financial end of anything.  So, please, don't take this article to mean that I am giving you financial advice.  Far from it.  I'm just sharing my experiences and what works for my family.  That is all.

Ages ago, so it seems, I used to coupon blog.  One of the biggest complaints I'd get from people about budgeting was,

"But, my husband (wife) is on a variable income.  That makes it impossible to budget!"

Au contraire mon fraire!

I used to think the same thing.  The entire time I've been married my husband has worked in construction and has worked in a family owned business.  That makes variable income an understatement.

Obviously (if you're reading this blog and are following along with what has happened to us) variable income inevitably also means periods of unemployment.  Which, yes, sucks.  But, I thought one of the things I could share on the blog is ways that I TRY to budget as well as I'm able on a variable income with an income that has no sick days, no personal days, no benefits of any kind and can go from my husband making nothing in a week (if he's sick or just doesn't have work that week) or to working high pay rates (such as working for federal or state union wages).

So, first part of the series is a big one I've seen on money saving sites for years where they extoll the values of no getting much of an income tax refund back in favor of being able to keep more of your money NOW.

I had a teacher in college who was a brilliant accountant say that no matter what you should never shoot for a large tax return as it will hurt your weekly income and it wasn't worth it.

I hate to be one to disagree with a man I heavily respected, but I not only PLAN for a tax refund at the end of the tax year, I also pray for it.

See, during the first year I was married, my husband got very sick with acid reflux.  The next year we were still dealing with medical bills, had to buy a truck because ours died and were trying to make ends meet.  And then my husband went through forced unemployment for a while.  I was working a minimum wage job and was making bills, but barely and I did the whole "take out what you're expected" on your taxes every week.

Well, due to illness, lack of work, SMALL paychecks on both our ends (which it turns out is what hurt us the most) and family problems, my husband made very VERY little that year and so did I.  We had both done the "married" allowances on our tax forms that year.  And we paid for it dearly.

In a year where we could barely keep our feet financially we ended up owing the IRS 214.00!  I cried, a lot, when I was scraping together that money to pay when we really didn't have the money for regular bills let alone money for the IRS.

Ever since that year we've made darned sure that something like that will never happen again.  This is how we do it.

No matter who was working. whether it just be my husband or my husband and myself (which since we've had kids it's just been my husband working) we kept our allowances at single and 0.  Period. 
And yes, we have kept it that way even after we've had children.  This has saved our bacon in years where jobs would result in small paychecks, many times multiple paychecks from different jobs (with federal work) where your gross income wouldn't really jive with what was being taken out for taxes.  In years where my husband's co-workers would be paying out sometimes thousands to the IRS at the end of the year due to this dilemma, we've always gotten money back.

For us the week to week loss of income is worth it.  No we don't do this for the "big tax refund" at the end of the year that a lot of sites act like is the only reason you work it so that you will get money back at the end of the year.  No, we do it so we don't end up paying OUT on a year where we just plain can't afford to do it.  We'd rather get money back, which we can put into savings, instead of worrying about having to write a check to the government.

But, that is us.  Every set of circumstances is different and I hope you can find a system that works for you!

Next up is how I tackle when we get a large sum of money in, such as a tax return.

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