Snowball Question

[k9kreationz]

My DH is on commission. Not 100%, but enough that it matters. What is the best way to do a snowball chart, when you have no clue how much "extra" you can put to the cards....because it changes every month?

 

I also hate having to do a budget off of this. I never know when one month is going to be really good, and we can pay down something, or really bad, and I should've saved that money. Ugh.

 

thoughts? Suggestions? I'm game to hear anything. I'm so frustrated. lol

 

TIA.

[Jen23514]

I work 100% commission, but have a pretty good idea of the "minimum" I will bring home a month. I've built up my base accounts to where I know my income RARELY drops below a certain level. So, what I do (not so well some months! LOL) is budget/plan off the minimum.

 

What that does is allow me to have some cushion. x=minimum I think I'll earn every month (I also get paid 1x/mo)

 

Here is how I do it. My direct deposit is divided 3 ways:

 

*15% of paycheck = savings account at ING (I keep this separate from my USAA accounts, out of sight, out of mind). Once that reaches x times 12, then I will divert that to investments.

 

* $600 goes into a USAA checking - personal spending, which i use for gas, groceries, morning coffee, target, eating out, etc

 

*net balance of paycheck = "bill pay" account at USAA - all of my bills are paid through USAA's bill pay system out of this account. It's automatically pulled for all bills on the 16th. whatever is leftover, I don't touch in case there is a month that I go under X. The only checks I write a month are to DDs school for tuition, lunches, and DDs after school program.

 

When this amount gets to twice the amount of X, I then apply it towards my snowball debt or other debt that I want to pay down. Whatever account is next on the list, that is what I apply it towards.

 

Now, I've actually paid off all my cards, so when it gets to 2 times X, I xfer it to either my fidelity account or UBS account for investment purposes.

 

 

 

Having twice the amount of X (in this case, your husbands base pay) in the checking account hedges against up/down months are prevents emergencies. Once you have that safety net in there, use his commission to pay down whatever is next on the list.

 

HTH~

[Call Me Laura]

I don't know if this is the *best* approach, but it's what would make me feel the most comfortable, were I in that situation - create a cushion of 3 month's normal expenses in your checking account. Average out hubby's income over the last 12 months and see how much that is over your expenses. Use that amount for snowballing, using the cushion where needed and replenishing with overages.

 

So, for very round, imaginary figures, if your monthly expenses are $1,000 and average income is $1,500, your savings would be $3,000 and you would use $500/month for snowballing. If income one month is $1,200, you'd take $300 out of savings. If income is $1,800, you'd put $300 back in. If savings is full and income is > $1,500, you'd apply the extra to snowballing.

 

I am a security freak and I can't tell you how much less stressed I became when I didn't have to worry about overdrawing my account all the time.

 

One other thought is to cut expenses until you can manage on his base salary (or yours). I wouldn't expect you to live at the poverty level, but if you have basics covered, you can save up to pay for things, rather than get them on credit and be worried about a minimum payment you might not always be able to make.

[vampireluck7]

wow, these are some good replies!

[k9kreationz]

I work 100% commission, but have a pretty good idea of the "minimum" I will bring home a month. I've built up my base accounts to where I know my income RARELY drops below a certain level. So, what I do (not so well some months! LOL) is budget/plan off the minimum.

 

What that does is allow me to have some cushion. x=minimum I think I'll earn every month (I also get paid 1x/mo)

 

Here is how I do it. My direct deposit is divided 3 ways:

 

*15% of paycheck = savings account at ING (I keep this separate from my USAA accounts, out of sight, out of mind). Once that reaches x times 12, then I will divert that to investments.

 

* $600 goes into a USAA checking - personal spending, which i use for gas, groceries, morning coffee, target, eating out, etc

 

*net balance of paycheck = "bill pay" account at USAA - all of my bills are paid through USAA's bill pay system out of this account. It's automatically pulled for all bills on the 16th. whatever is leftover, I don't touch in case there is a month that I go under X. The only checks I write a month are to DDs school for tuition, lunches, and DDs after school program.

 

When this amount gets to twice the amount of X, I then apply it towards my snowball debt or other debt that I want to pay down. Whatever account is next on the list, that is what I apply it towards.

 

Now, I've actually paid off all my cards, so when it gets to 2 times X, I xfer it to either my fidelity account or UBS account for investment purposes.

 

 

 

Having twice the amount of X (in this case, your husbands base pay) in the checking account hedges against up/down months are prevents emergencies. Once you have that safety net in there, use his commission to pay down whatever is next on the list.

 

HTH~

 

 

Okay. I had to read that a few times. lol. Thank you thank you thank you. Seeing others in this situation makes it much easier. DH's minimum wouldn't cover our mortgage/bills, so I think that's the hard part. He does need to make a certain amount. I also think, you getting paid once a month, although VERY hard, is easier to figure out a budget with commission. Ugh. I mean DH may get paid X one week, and half of X another. I just need to figure that out too.

 

Although, I do like the way you did that. Allow X to build and build and when it becomes 2X then pay off a chunk to the snowball chart. I'm assuming, until it becomes 2X, you're still paying minimum payments? Is that right?

[k9kreationz]

I don't know if this is the *best* approach, but it's what would make me feel the most comfortable, were I in that situation - create a cushion of 3 month's normal expenses in your checking account. Average out hubby's income over the last 12 months and see how much that is over your expenses. Use that amount for snowballing, using the cushion where needed and replenishing with overages.

 

So, for very round, imaginary figures, if your monthly expenses are $1,000 and average income is $1,500, your savings would be $3,000 and you would use $500/month for snowballing. If income one month is $1,200, you'd take $300 out of savings. If income is $1,800, you'd put $300 back in. If savings is full and income is > $1,500, you'd apply the extra to snowballing.

 

I am a security freak and I can't tell you how much less stressed I became when I didn't have to worry about overdrawing my account all the time.

 

One other thought is to cut expenses until you can manage on his base salary (or yours). I wouldn't expect you to live at the poverty level, but if you have basics covered, you can save up to pay for things, rather than get them on credit and be worried about a minimum payment you might not always be able to make.

 

I think this is great. Thanks for the info. My only concern would be using the money I saved. I don't like having to dip into my savings. I mean, we do have a savings, right now, it's about 1x his salary, but ugh. I guess if we had 3x it wouldn't bother me as much. Thanks for the info. I know a security blanket would help me too.

[Jen23514]

DH's minimum wouldn't cover our mortgage/bills, so I think that's the hard part.

 

I mean DH may get paid X one week, and half of X another. I just need to figure that out too.

 

Although, I do like the way you did that. Allow X to build and build and when it becomes 2X then pay off a chunk to the snowball chart. I'm assuming, until it becomes 2X, you're still paying minimum payments? Is that right?

 

OMG *slaps my forehead* I reread what I wrote, and even I am like WTH????? Let me start over...

 

In your case, let's say X is $2500, that is ALL your bills for the month (I'm just pulling a number out of the air).

 

I would personally try to match X in your bill pay account, to buffer the ups and downs of commissions. Once you get that buffer there, you won't believe the amount of stress that leaves your shoulders. Personally, I am more comfortable with 2X, but you need to evaluate that for yourself.

 

Once you have that extra $2500 in your bill pay account..... based on your debt, your lifestyle, your spending, etc... you need to decide what you think is a more important priority.... getting 2X in there OR start snowballing your debt at a greater rate than what is built into your current budget.

 

You can build a simple snowball plan into X.... and then once you have your buffer saved up, use the extra commissions above and beyond X (we'll call it Y) to add to your snowball. I am a FIRM believer though, in having that buffer when you work commissioned jobs. As I said, once my debt was paid off, I took Y and started investing.

 

I saw your wrote Laura that you do not like to dip into your savings... this is why I keep my bill pay account, my spending (debit) account, and my savings accounts separate. The buffer I keep in my bill pay account I do NOT count as savings.

 

 

ETA: Did I do any better today?!

Edited April 10, 2008 by Jen23514

[Call Me Laura]

Yeah, I probably shouldn't have used 'savings', although technically that's how I'd accomplish it. I have a savings account tied to my checking account and can transfer money back and forth, but of course, get a higher interest rate on the savings, so I keep my cushion there. I have a completely different "savings" account where it takes a couple of days to get the money out, so I really have to need it before I raid that. The bulk of my liquid savings is there, and only a cushion in the linked one.

 

I really like the multiple accounts idea, since I have the same problem with using money I've saved 'for a rainy day' if it's not raining. It really bugs me to raid the savings account (which I guess is a good thing) but it might be easier with a "bills" account. Expect it to fluctuate and you should be ok (I don't have any problem taking my checking account to 0, just savings...)

 

Also, if you have room to store stuff, buy some staples in bulk. Having some beans and rice in the pantry can help you feel like you won't starve to death if things get lean for a month. (lol, it's starting to sound like we grew up poor or something.)

[Jen23514]

by keeping a month's worth of expenses though, you can usually open up a money market account and still do online bill pay outta there... and earn a little interest. yeah, the interest sucks, but for me and my situation the peace of mind is 100% worth it.

 

btw, nothing wrong with beans and rice once in awhile anyway..... americans eat too much meat anyway

[k9kreationz]

DH's minimum wouldn't cover our mortgage/bills, so I think that's the hard part.

 

I mean DH may get paid X one week, and half of X another. I just need to figure that out too.

 

Although, I do like the way you did that. Allow X to build and build and when it becomes 2X then pay off a chunk to the snowball chart. I'm assuming, until it becomes 2X, you're still paying minimum payments? Is that right?

 

OMG *slaps my forehead* I reread what I wrote, and even I am like WTH????? :( Let me start over...

 

In your case, let's say X is $2500, that is ALL your bills for the month (I'm just pulling a number out of the air).

 

I would personally try to match X in your bill pay account, to buffer the ups and downs of commissions. Once you get that buffer there, you won't believe the amount of stress that leaves your shoulders. Personally, I am more comfortable with 2X, but you need to evaluate that for yourself.

 

Once you have that extra $2500 in your bill pay account..... based on your debt, your lifestyle, your spending, etc... you need to decide what you think is a more important priority.... getting 2X in there OR start snowballing your debt at a greater rate than what is built into your current budget.

 

You can build a simple snowball plan into X.... and then once you have your buffer saved up, use the extra commissions above and beyond X (we'll call it Y) to add to your snowball. I am a FIRM believer though, in having that buffer when you work commissioned jobs. As I said, once my debt was paid off, I took Y and started investing.

 

I saw your wrote Laura that you do not like to dip into your savings... this is why I keep my bill pay account, my spending (debit) account, and my savings accounts separate. The buffer I keep in my bill pay account I do NOT count as savings.

 

 

ETA: Did I do any better today?!

 

LOL. Thanks. One question. You said, "bill pay account". I just want to verify that you do mean it's a 100% separate checking account to pay bills with. If so, that makes MUCH more sense. lol. My own "duh" moment. I was thinking you meant "Bill Pay" as in some sort of program. Not just some account you pay bills with. If that is the case, what are you using? lol.

 

Okay, so if I leave your fake 2500 in the bill pay account......the first 2500 is the buffer, right? the second 2500 I(now totalling 5000) can either be a buffer, or what i'm paying bills with. If it's a buffer, then I need yet another 2500 (total 7500 now) to be used for bills. And THAT last chunk of 2500 is 1. what pays bills and 2. what comes in from his paycheck. And if what he makes doesn't cover everything, I just use the buffer that's already built in (frist and optional second 2500). All other monies either go into a spending account or to my snowball. Is that about right?

 

I think I'm understanding this. lol. I think it'd take a LONG time for us to build a buffer, however, we have a chunk of money here and there that we can use for buffer. I just need to figure out to "appoint" which account is which without having to open new ones. Just means moving money around.

 

I also like Laura's idea of waiting until the "extra" got to a certain point. I'm going to throw these two ideas at DH and see what he feels is good too....and make a plan.

 

Thanks!!! This is awesome. Unfortunately, we've been dipping WAY too much into our "buffer" over the past 3-6 months. So our regular one is all but gone. Time to move things around, rebuild and start paying down. I am feeling great. lol. And as soon as I see my spreadsheets, Ill cry again.

[k9kreationz]

it's starting to sound like we grew up poor or something.

 

LOL. But it's how we need to live so we can pay down some of our debt....that's for sure. Thanks for the sugg's, they really do help me a lot!!! I've never had to deal with commission pay, so I can't say I've been doing a good job, especially when he's short. Thankfully, he'll have a good month next month (can we say BUFFER!!!).

[Call Me Laura]

I've never done commission and it would probably scare the crap outta me. I've been tempted to try other jobs before, but I'll always have to work for someone so I have a consistent income. Just too stressful otherwise!

 

I did do something similar when I worked irregular overtime, though. However, it all went to snowballing (except the trip to Europe) because my current bills were covered by my salary and the extra really was extra.

 

Actually, I do like beans and rice, lol, but I put ham in mine. $1 for 8 bean soup mix, $2 for rice, $5 for some ham, and I could eat for a week. It's more the psychology of having the food there, in case you do need to make groceries stretch a few days until the next check. I've never unintentionally gone without food growing up, so I don't know where it comes from, but I usually have a store of things I might need. haha, I could probably go 6 months without having to buy shampoo...

 

Speaking of living cheaply, don't be afraid of coupons or shopping clearance. Once you take the price tags off, no one knows what you spent on something unless you tell them. And with clothing, generally the more expensive it starts out, the longer it lasts. It costs more, over the long run, buying clothing over and over because it wears out, plus it doesn't look as nice. And if you get it on sale, it's the same outlay as the discount version. Try Sierra Trading Post online for some awesome deals. (Just don't ask them how much I've end up spending there!)

[stuben]

I work 100% commission, but have a pretty good idea of the "minimum" I will bring home a month. I've built up my base accounts to where I know my income RARELY drops below a certain level. So, what I do (not so well some months! LOL) is budget/plan off the minimum.

 

What that does is allow me to have some cushion. x=minimum I think I'll earn every month (I also get paid 1x/mo)

 

Here is how I do it. My direct deposit is divided 3 ways:

 

*15% of paycheck = savings account at ING (I keep this separate from my USAA accounts, out of sight, out of mind). Once that reaches x times 12, then I will divert that to investments.

 

* $600 goes into a USAA checking - personal spending, which i use for gas, groceries, morning coffee, target, eating out, etc

 

*net balance of paycheck = "bill pay" account at USAA - all of my bills are paid through USAA's bill pay system out of this account. It's automatically pulled for all bills on the 16th. whatever is leftover, I don't touch in case there is a month that I go under X. The only checks I write a month are to DDs school for tuition, lunches, and DDs after school program.

 

When this amount gets to twice the amount of X, I then apply it towards my snowball debt or other debt that I want to pay down. Whatever account is next on the list, that is what I apply it towards.

 

Now, I've actually paid off all my cards, so when it gets to 2 times X, I xfer it to either my fidelity account or UBS account for investment purposes.

 

 

 

Having twice the amount of X (in this case, your husbands base pay) in the checking account hedges against up/down months are prevents emergencies. Once you have that safety net in there, use his commission to pay down whatever is next on the list.

 

HTH~

 

Great strategy!

[Jen23514]

yes, I have 2 separate checking accounts at USAA. One is PURELY bill paying. The other is for discretionary spending, and gas and groceries fall under that.

 

I know it takes awhile to get 1 month of bills saved up as your buffer. That is MY buffer. Because i'm paid 1x a month and 100% commission, I do not feel comfortable having less than a months worth of expenses in that account (in addition to other savings). For you and your husband, $1,000 might be enough to decrease some of the stress I was sensing in your posts or $500 or 3 mos expenses it's really a individual thing.

 

By separating the accounts then I don't accidently overspend if the gas company takes 2 weeks to cash the check, kwim?

 

Sounds like you are on the right track!

[k9kreationz]

Again, thanks everyone. DH and I have talked a lot about this. He doesn't really want to open another joint checking, however, the fact remains, THE BILLS FALL IN MY LAP. And if another account will help me, he better sign on the dotted line. lol.

 

I think I'm going with the separate accounts. We just need to open another joint. it'll make life easier, and DH can check the balance and know "that's for spending" versus seeing 3,000 and thinking he can spend any of it, when in truth, we have $5 remaining cuz I'm waiting for things to clear. KWIM? lol.

 

My only dilemma now is....do we build a buffer, or take out from our savings to create a buffer? Mostly because time is of the essence......I am putting any "extra" to snowballing, instead of creating a buffer (that'd take a LONG time, and could pay off a couple of CC's).

 

I have a plan now, and that lowers my stress levels. Thanks again. This really has helped a lot. I love this board. lol.

[vampireluck7]

Waiting for Jen, the expert, to reply ....

 

But:

Why are you afraid to use the savings for the cushion?

Because you are afraid that that safety will be gone? (Yes, I understand that. But see it this way, your savings are replaced by another, better safety net, and you will rebuild that savings )

Or is it because you loose interest on your savings? - If this is the case, how much would overdraft fee & interest cost you? Probably much more than the interest you earn on your savings.

[vampireluck7]

Something that caught my eye ...

 

and DH can check the balance and know "that's for spending" versus seeing 3,000 and thinking he can spend any of it, when in truth, we have $5 remaining cuz I'm waiting for things to clear.

[k9kreationz]

Waiting for Jen, the expert, to reply ....

 

But:

Why are you afraid to use the savings for the cushion?

Because you are afraid that that safety will be gone? (Yes, I understand that. But see it this way, your savings are replaced by another, better safety net, and you will rebuild that savings )

Or is it because you loose interest on your savings? - If this is the case, how much would overdraft fee & interest cost you? Probably much more than the interest you earn on your savings.

 

Good questions. Actually, the answer is NEITHER. It's because I'm afraid we'll lose it...and lose our "reserves" for when we refi the house (within a year). We need that cash reserves in case we need to pay any out of pocket expenses for the refi. and I'd hate to have to charge it, KWIM? Hence, I'm worried we'll dip too much into our savings, and realize too late that our reserves are VERY low.

 

Hope that made some sense. Due to the refi, we're working to lower our DTI, versus actually doing this in a "smart" way, we're going about it "backwards". It's so strange. We have to do strange things that go against every thing I have learned....but if it lowers our DTI to help with the refi, I will do it. Hence, keeping the savings separate, so we don't touch it.

[vampireluck7]

Ouch, our "savings" are earmarked - they are not a cushion!

[k9kreationz]

Something that caught my eye ...

 

and DH can check the balance and know "that's for spending" versus seeing 3,000 and thinking he can spend any of it, when in truth, we have $5 remaining cuz I'm waiting for things to clear.

 

 

What about it caught your eye?

[k9kreationz]

Ouch, our "savings" are earmarked - they are not a cushion!

 

 

so is most of ours. Another reason I don't want to dip too much into specific areas of my monies. kwim?

[vampireluck7]

Something that caught my eye ...

 

and DH can check the balance and know "that's for spending" versus seeing 3,000 and thinking he can spend any of it, when in truth, we have $5 remaining cuz I'm waiting for things to clear.

 

 

What about it caught your eye?

It sounds like your DH is not with you on your quest.

[vampireluck7]

Ouch, our "savings" are earmarked - they are not a cushion!

so is most of ours. Another reason I don't want to dip too much into specific areas of my monies. kwim?

Yes, I very much understand you.

I wanted to say "your savings", it was a Freudian too funny

 

Unfortunately, we've been dipping WAY too much into our "buffer" over the past 3-6 months. So our regular one is all but gone. Time to move things around, rebuild and start paying down. I am feeling great. lol. And as soon as I see my spreadsheets, Ill cry again.

 

No, don't cry! You are working on this! And you are fixing this! You will get a hand on this I am sure

 

What I am starting to think is that you recently had some financial hardship (DH changed job?).

And that your current income is less than the old income was.

IMHO, this means you either have to cut expenses or increase income.

 

But, as I said, you are taking charge of this

WTG!

[Jen23514]

Waiting for Jen, the expert, to reply ....

[Jen23514]

My only dilemma now is....do we build a buffer, or take out from our savings to create a buffer? Mostly because time is of the essence......I am putting any "extra" to snowballing, instead of creating a buffer (that'd take a LONG time, and could pay off a couple of CC's).

 

if he doesn't want to open the account, ask him what better alternative he has?

 

personally, I would put a one month buffer in there THEN use remaining $ to snowball the debt.

 

The reason? One bad commission check could really derail your plans (ask me how I know )

 

You need to get him on board. Figure out if you keep up your current contributions he'll be XX years old when the CCs are paid off. When my BIL showed my sister that, they made some radical changes. They moved from Charlotte to Chapel Hill for a new job, bought a smaller and cheaper home, and tweaked a few other things. They are now paying off their home 2x as fast. Not everyone can make that radical of a change, but you can get radical in your own way.