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Everyday Cheapskate: Learn how to budget on a roller coaster income

Dear Mary: My husband has two jobs — he is an artist and a salesman. He earns commissions from both jobs, so we never know what our income will be. I work part-time and am paid hourly. How can we possibly live on a budget? — Jenn P., Texas

Dear Jenn: The mistake many people who live with an uncertain income (or what I call “mystery means”) make is they spend whatever amount of money they earn as it comes in.

They multiply a good month’s income by 12 and figure that’s about what their annual income should be and then set their lifestyles accordingly. Then they starve during the lean months, allowing all the bills to go past due hoping that a good month will follow soon.

The secret to living on an uncertain income is to determine the very minimum you need to live each month. What dollar figure must your husband’s commissioned jobs produce so that when added to your part-time paychecks will allow you to pay all of your bills? Whatever that number is, let that become his new salary.

Next, open another checking account and designate it as his holding account. Instead of putting his commission checks into your regular household account, from now deposit them to this holding account. Once a month, write out one check from this account to pay him his salary. This is going to require a great deal of discipline because some months he will bring in more than the amount you’ve determined to be his salary. That’s good because you will have lean months ahead. Allowing money to build up in that separate account will become the reserve you need to pay him even during those slow months.

Being self-employed (or commission-based, which to me is about the same thing) can be either rewarding or horribly debilitating. It all depends on your willingness to be disciplined and to exercise great restraint during that occasional month when it feels like your ship has come in. Don’t believe it. Next month could produce little, if any, income at all. You have to learn to handle both.

Dear Mary: I would like to know your opinion of the American Express Pass reloadable card for teens. — Debbie G., California

Dear Debbie: I am opposed to any kind of plastic for kids of any age. Honestly, age 18 is about the right time to introduce credit and debit cards. Plastic is a privilege for financially mature adults.

Plastic confuses and skews children’s thinking processes. Cash, on the other hand, works like a dream. It’s real, and you cannot spend more than you have. Teach your kids how to earn, save, give and manage cash. Those are the skills they need to learn now so that they will be able to understand and manage plastic in the future.

I have written extensively about this in my book, “Raising Financially Confident Kids,” which also includes a foolproof, step-by-step plan that will help you to produce financially confident adults. I hope you will read it soon, before you hand your child an American Express card. Keep an eye on your mailbox. I’m sending you a copy of the book. Enjoy!

Do you have a question for Mary? Email her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2099, Cypress, CA 90630. Mary Hunt is founder of www.DebtProofLiving.com, a personal finance member website.

To find out more about Mary and read her past columns, please visit the Creators webpage at www.creators.com.

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