Expected vs. Unexpected Income
In the book, we divide income into two categories Expected (or Predictable) Income is the money you can regularly expect every month. Unexpected Income is the money that comes in less frequently.
For our monthly budget we use our Expected Monthly Income (rounded down) and use that to cover our monthly bills (which we round up).
As someone recently pointed out, if you have a weekly or bi-weekly pay check, some months you will receive an extra check. This extra check would fall under what we call Unexpected Income. Yes, you knew you were getting it, but it's not expected every month. Unexpected income may also come in the form of a gift, an inheritance, a Christmas bonus, a tax refund, or any number of bizarre places.
The first thing you should do is find out if this unexpect income will be taxed and set that money aside in a savings account where it will collect interest for you til tax time. Then you make a plan for the money, kind of a mini-budget. The less money, the simpler the plan. We suggest keeping these priorities in mind as you plan:
Priority 1: Needs
Priority 2: Small Debts (Anything that can be paid off in a single payment)
Priority 3: Emergency Fund (Easily accessible savings account with 6 months living expenses.)
Priority 4: Large Debts (Anything that requires multiple payments, the regular payment falls under your regular bills)
Priority 5: Big Dreams and Entertainment (Big Dreams = Short and Long Term Savings)
My $188 tax refund arrived yesterday. Thankfully, our monthly budget is handling our needs pretty well. And I don't currently have any debts. My emergency fund isn't quite up to where I would like it to be, and my original plan had been to put the money in there.
But I'm also planning to take a trip this month. Ideally it would take place later in the year, but it works out better for the friend I wanted to visit, so I'm going ahead now. After some research I did decide to cut Niagara out of my trip for now. All the stuff I want to do, doesn't start up til April. So the Canada portion of my Canada trip is going to be delayed. The road trip this month will just be to see a couple of friends up north.
Money wise, it helps a lot to cut Niagara out, because it means I won't have to worry about a hotel, and there will be less driving. Without a hotel our main expenses will be gas and food. I think $188 or $180 sounds like enough cash to take with us for a five day trip with no hotel and friends who have offered to feed us, particularly since I have a traveling companion who's going to half the gas with me.
I'll do a seperate post later in the week with trip details.
Originally, when a hotel might still be an issue I had planned to use my extra library paycheck at about $250 for a trip budget, so this is actually cutting the budget down for me. Hopefully, I won't use up the whole $180. I try to take more money than I think need just in case. Whatever's leftover will go back into my savings.
The rounding down of income and rounding up of expenses creates something we call "padding" which is quite intentional, and there to help with all those unexpected expenses that are bound to pop up.
We could do a more complex "tight" budget where every single penny is accounted for, but we've found that's often more stressful than helpful. Simple numbers are easier to stick to.