So far I have talked about budgeting using the money-pie method which is great for when you have one income. When you have multiple incomes, this suddenly becomes confusing – it can then become frustrating and then it’ll make you want to give up doing it completely.
And this is not the outcome we want!
So today I’m going to go through a few ways you can budget your money on a multiple income.
The “Dam” Method
Think of a dam’s function and purpose…it holds a reservoir of water to supply to people in the local area. It means that there is always a supply to tap into (unless you’re in Cape Town, and then you’d be getting worried).
The way this method works is by having two basic bank accounts. In one account, all your income goes. This will be your job, any extra work you do, birthday money, tax refunds etc etc. This will require you to change the details with your employers and/or discipline to transfer money into the account that comes your way.
In the second account, all your bills and direct debits go out. This is the account that you apply the money-pie method to.
The plan is to have a “dam” of money built up in account 1, and just before your bills come out you have a direct debit of the money you need to cover them sent over to account 2. Don’t forget to budget for fun, investing and saving etc!
What happens if I’m starting from scratch
So the hardest part will be if you’re trying to set this up with no money in the account yet. The problem with this method, is that you’ll need to build up the dam as you go. Ideally, you’ll want to be a month or so ahead in order to have a fully flowing dam (which also needs to account for months where you’d spend more, such as Christmas, birthdays or car insurance/MOT months).
Now you could do this in a few ways. You could live significantly under your usual budget for a minimum time frame, cut out all unnecessary spending and the savings you make help to build up the dam. You could sell stuff, or take up an “on the side job” like matched betting.
The other option is to work out where the quietest times of the month are for bills. So for me, the final two weeks of the month have very little coming out. This is when I would put money into the dam account ready for the next month rather than spend it. Likewise with any unexpected income, just throw it in, don’t spend it and let it build!
Tips for Success
- Work out how you spent and earned money over the past 12 months. Can you spot any patterns? If you’re a business owner, you might notice that you get paid really well leading up to Christmas, but January is a bad month. The busy period is where I would “fill up” the dam with the extra cash ready to plug the gap in January. Likewise with spending – when you have “low spend” months, put the savings into the dam.
- Automate as much as possible! The more fiddling you have to do, the more likely you’ll take more money than you need. You’ll need to have an up to date list of all your expenses, with dates they come out. If possible, change the dates of when your bills come out so they all come out in one go to help you organise your finances better.
When it is eventually up and running, you’ll always have money in account 1, and all of those multiple income sources will be collected together. You can turn on the tap whenever you need to! You’ll only then need to worry about account 2 and how you divvy up the monthly amount you “pay yourself” from account 1.
This is not going to be for everyone, but it is a way of tracking both income and expenditure. It requires that you document how much money is coming in as it comes in, and then allocating that money into a budget section. Again, if your outgoings are bunched up into one part of the month, this can make life easier, but you might prefer to spread them around based on your income.
The issue with this method is it requires a lot of effort and discipline. If you know that you’re not that kind of person (be honest), then you may find that this is not sustainable. Also, if your income is more piecemeal, or you have a lot of multiple incomes, then it will be too labour intensive!
Alternatively, YNAB (which stands for you need a budget), has an app you can use to budget your money if you don’t like spreadsheets. There are lots of ladies in my community who love using the app, so maybe you could take a look too? It is an app you have to pay for, but I have a 34 day trial you can use. YNAB have a lovely concept called ageing your money. When combined with the challenge of multiple incomes, it might just be the thing you need to help. Watch their video on it to see what you think!
Tips for success
- Stay current – keep up to date with tracking. Do it weekly if you need to
- Automate as much as possible (can you see a theme developing here?!). The more “fiddling” we have to do, the more likely it is we’ll sabotage ourselves.
- Have multiple accounts open – you can then transfer money into them for different things. Natwest allow you to give your accounts “nicknames”, so I change mine depending on what I’m saving for.
- Consider using YNAB.
This requires you to list out all of your expenses in order of when they need to be paid and in order of priority. Don’t forget to include groceries, petrol, investing, saving, emergency fund, fun etc. At the end of the list you can put extras in like clothes/additional spending money etc.
When your first income amount comes in, you allocate that to the first things on your list. If it doesn’t quite stretch, you might need to rearrange the direct debits with your bank.
When the next amount of money comes in, you’ll then need to look to see where you left off on the list and allocate money to what you can down the list. Again, rearranging direct debits if required.
Keep going through the month until everything is paid. If you run out of money, then hopefully it means the things that aren’t paid for are the optional extras like clothes and spending money. If you can’t stretch to cover bills, then you need to take a long look at what you’re spending on and whether you are getting the best value for money!
Tips for success
- Have the list shown prominently somewhere in your house so you can always refer to it. Tick off the items on the list as you pay them off.
- Save surpluses rather than be tempted to add another item onto the list – you’ll need this for unexpected expenditures and your emergency fund!
So there are some ideas for you to get started with. Allocate time this week to make a change to your finances! If you try something for a few months and it doesn’t work, try something else. The most important thing is to not give up!
Let me know what you think. How do you manage your multiple income?