I don’t understand how SE people budget

[LostwithSE]

NC for this.

DH and are I just rubbish with money. I’ve been trying to get better all my life, he doesn’t really seem to care. I am paid a high salary: he is Self employed. This works well because it gives us flexibility with young children (previously both commuting into the city)

However, we have high outgoings and his earnings are completely unpredictable to the point I don’t know how we can rely on them. In year 1 of his business his earnings were used for holidays and home improvements and I paid for everything else which wasn’t always easy. I run out of cash almost every month.

We’re now in year 2. He underestimated his tax so all earnings for the next couple of months will go on paying that.

Added to this he’s being paid late by customers and I feel like due to the tax issue we’re just never going to be “ahead”- cash comes in, it goes straight out to cover an urgent business expense.

He hasn’t contributed anything to the “family budget” since Christmas (he paid for all the presents, food etc)

I’m now due to go on maternity leave in a couple of months, and my carefully planned budget to pay for this simply hasn’t materialised. At present isn’t the money due to come in, and though this can change it makes planning impossible.

My biggest concern is cash timing, ie he might have the money overall but is there £x mortgage payment available on X day of the month?

As well as advice to budget (are there any organisations that can help with this?) any advice on how to discuss this with DH? It’s impossible to have a rational conversation because we both get annoyed and upset and he refuses to talk about it.

To be honest, at this point I don’t even know what to talk about. The easier option seems to be wait and see what happens when my maternity pay runs out

“GeorgieTheGorgeousGoat

We’re taking about the tax further down the line, the next lot is due end of January, when are you planning on saving for that?”

Well that’s the problem isn’t it? 🤣

Urgh big sympathy Laurie. DH now has an invoice 5 days late and the company haven’t even processed it so it will be a couple of weeks still.

His accountant does his p&L and on the face it’s very profitable. It’s just not working somehow. Def not a hobby business although it does have a fairly high monthly outgoing which is non negotiable.

And obviously we would’ve overspent last year not realising the tax was underestimated. He should’ve been putting away more, there is no question about that, but we are where we are now and it needs paying.

He earns money, it’s just unpredictable

But he hasn't brought any money in to contribute to the household in 4 months?

Also miscalculated tax which is going to cost you another couple of months earning from him.

Can you really afford to carry him, on maternity leave with an expanding family?

I don't think he's being realistic at all, his business seems to be the problem here and is a drain on your household, you need to get involved with the finance of the business, tax & bills and be honest with yourselves about whether his business is financially viable.

“Prioritise that loan being paid off”

Can I ask why we should do that? It would cost more to paid it off early (where would we even get the money from?) than to continue to agreed monthly repayment for the term of the loan?

The interest rate is very low, I’ve checked and can’t get anything better to refinance it. It still has 3.5 years to run.

I've had a similar problem as the main self employed breadwinner (in London) trying to bring in a regular income with two children (now 9 & 11), whilst building a business with very sporadic income. DP earned a lot less, and with 2 pre-schoolers, effectively wasn't worth working after childminder fees. So I felt a heavy responsibility to provide a consistent income.

My solution was to use Invoice Factoring. I don't know how we'd have coped without that certainty of income every month. It's not cheap, but was worth it for me.

Your DH definitely needs a virtual FD, or just a good accountant. He can use GoCardless for Direct Debits, arrange stage payments for large projects, look into interim financing facilities - it's all out there, he just needs the right advice so he can concentrate on sorting clients out, and leave the financing to others.

Dizzy the other option is that he is a sahp, but there is no point in that for the 6 months or so I’m on maternity. Also, he would still have the tax to pay so it’s not like you can just wrap up a company and move on.

However if he isn’t supporting the family when I go back to work I won’t be paying out for any childcare. He can work it out.

Those options are really interesting leafy, thank you. How would you go about finding a virtual FD?

IRememberSoIDo sorry, I missed your post. This is exactly why he became self employed too but it’s so AGGg

Don't think I'm allowed to make specific recommendations, but Google is your friend for finding VFD's. But your accountant would be your first recourse to advise on whether you've reached the required turnover threshold for a virtual FD, and which ones they like to work with. Ask there first - also, about the range of other options I've outlined. If you DM me, can give you some specific names.

We have a variable income. It took a couple of years to get to a place where I didn't feel anxious every month. I did it using the You Need a Budget programme and app.

Tbh, the app is secondary to the habits it teaches you - one of the most important things it taught me to do, every time you get some money is ask yourself, "what does this money have to do until we're paid again?"

You split the money you have just received up into pots for essential bills (tax, mortgage, council tax, food etc) and then a bit for annual bills (eg car insurance and maintenance) and then, and this is what made the difference for me, a little bit for a buffer against a bad month. When you have a good month, more goes into your buffer. It's only when your buffer reaches an amount you are comfortable with that you go on holiday or do home improvements. If an unexpected expense comes up, and it's unavoidable, your budget isn't fixed - you take the money from the going out fund and pay for the school swimming lessons or whatever. In short, you learn to only spend money you actually have, because you are budgeting with what you have received, not what you hope to get.

If you do check out the YNAB app, the philosophy and method are completely tied together. It takes a while to click, but when it does it works really well. I have the old YNAB, but there's now a pay monthly online version. You have to enter all your spending in the app, but that's a good check for me. You will have to get your husband on board with it, but in my experience having YNAB takes the emotion out of budgeting and makes those discussions easier. Good luck.

Thanks leafy he seems to have a very good accountant (he might not be best pleased when he realises the tax hasn’t been paid mind) so I’ll ask him to talk to him.

Cordelia that app sounds fantastic! Just the sort of thing that could help massively. As you say though he’ll have to be onside so I’ll do some investigation and bring it up with him

So he is currently not earning enough in particular time periods to cover costs "that month" but he can't go back to being employed as he wouldn't earn as much and you need him to do childcare.

If the business is overall earning more than he would if he were employed he needs to stay self employed but try to make his business more transparent in terms of earnings and how viable it actually is.
You need a Cash flow forecast that will run for a rolling 2 or 3 month period that realistically shows were the money is coming in and how that effects the balance. In your forecast it should show one row definite income (confirmed work, contract signed etc ) and your fixed costs. A secondary row adding in planned work so you have a view of your realtime situation against a projected view. (Not sure if I explained clearly with my DS climbing on my head )

You can't look at the business as a yearly amount. It's hard without knowing what the business is but if you look back over last years accounts where are the peaks in revenue, is it likely to be a trend and you could capitalise on that this coming year.

He also needs to be saving for his tax, I know you said this is impossible with current earnings, but it is a must and needs to be counted as a fixed cost.

I think the more you actually view his accounts, if he is earning more than he would in employment, there will be a way of making the business more financially efficient, however managing that money may be the issue.

Managing the money is absolutely the issue tigger. And now at the time we need the money, we seem to be on the back foot with it. The cash flow is a really good idea. The earnings/ outgoings aren’t transparent at all, but as I say it’s been impossible to talk about this/ agree change that that’s a huge part of the issue. I know it’s harder to give advice on but the problem is far more that than just putting together a spreadsheet

My DH and I are both SE. We're fortunate in that he is relatively high earning.

I have a spreadsheet which I update regularly with every fixed monthly outgoing on. I also
Estimate food, fuel extras etc. Whatever we both earn goes into a shared business account. Each month on the same day of the month I put aside 30% of our earnings for tax and to save to build a buffer for low pay months. I then pay us the same amount of money each month from what's left into our usual current account. A fixed salary.

Psychologically, having a fixed amount of earnings into the household each months makes budgeting easier and saving easier. In good months we're saving to still be able to afford the bad months.

You used to be able to access financial counselling through Citizens Advice when I worked for them but that is a long time ago. Here is Australia some not for profit organisations offer the service so maybe google locally with that in mind?

We also work on a low monthly outgoings budget, and put this figure into the joint account to spend each month. Any other money is held in both of our separate business accounts (both SE atm). We each have a £10k ish buffer. There are times when the £10k gets spent (thanks Brexit cliff edge bollocks) and I find this very stressful. DH saves 20% of each job for tax and I save less as I'm pt at the moment.

You have my sympathies. It's stressful all the time and I'm bored with the enforced low outgoings. The uncertainty of dry periods, cashflow jams and out of control jobs all have quite a big impact on our lives. I'll go ft again as soon as I can get a new position, but DH won't. It would make life so much easier if he were a ft waged employee, but he won't consider it for other (fair) reasons. But I do resent it at times.

I hear you sleep deprived

Thanks all, have some googling and planning to do. It’s been useful

Agree this sounds like a cash flow issue, predominantly. The lack of actual income Nov-Feb - is that, no net income, or actually is that a partly predictable fallow period in his business? If that is likely to happen next winter, would there be any possibility of him working part-time and covering childcare part of the week when you first return to work, prior to a busy time starting up again?

Perhaps you can work out a basic monthly amount that is needed, and let him know that X months of that amount need to be set aside, independent of tax and business expense considerations, by October when your maternity leave budgetting runs out (or an earlier deadline). If that amount isn't physically available at that point, make it clear that you will be going back to work early.

Over time, if he monitors his cash flow, hopefully you can predict how big your buffer actually needs to be to cover living expenses year round.

Good luck, hope you can get things into a good place.

Thanks python. I think, on reflection what happens is “unusual” events take a while to get over, if that makes sense. And not really knowing much about SE I don’t think I’ve realised that before. A simple example would be a summer holiday- not only do you lose the money you could earn whilst you’re away, it’s harder to get back into the swing of earning when you return (his product has a fairly long lead time, if he makes a sale today the income is likely to be realised in July) he does work on holiday to minimise this, but I think we need to be smarter about it (not that there is any holiday this year lol)

But specifically November to February I think it was related to some very bad news received mid December, which took about 3 weeks to sort out and recover from. He worked through this time but there was no doubt his mind was elsewhere. Of course as an employed person you can afford a couple of disturbed weeks, or take sick leave as needed, but with SE it’s all on you.

It’s a bit of a revelation tbh

I'm self employed and a single parent. My earnings are not high by any stretch of the imagination
I have good and bad months, very variable income, and summer holidays and Christmas are always quiet work wise.
I have a ddm set up to pay x tax and ni each month based on earning x per month. If I earn more than this the excess goes Into another pot. 20% attributed to tax and 80% for savings, which I use to top up my cashflow on crap months and to pay for Christmas etc. When I'm quiet with work I use the time to sell stuff on Ebay and Facebook groups. I am a bit of a hoarder so.its things like DSs outgrown clothes, household bits. I also use cashback sites regularly, and especially for house and car insurance, when switching utilities etc. I let this build up over the year to go towards Christmas. It's tough but we get there one way or another!

Can you approach family members for any help at all?.What about seeing if the CAB have any ideas for you?.With a new baby due you really dont want to have any extra worry .Why not speak to your mortgage company and see if you can pay a smaller amount?.this is usually more acceptable to them than a payment break.Likewise council tax (our local authority has a 10 month plan with 2 free months ) If you know its just a cash flow problem ,maybe approach your bank for a SMALL loan!.Try buying food in bulk if you can and freeze it(easier anyway with a new babe!.Look on Ebay for bargains for baby.Good luck and try not to worry too much ,things often work out better than we think!

Hello, nothing really to add other that that you have my sympathies as we are in the same boat. I earn a regular salary, my husband is self-employed. Lots of married people pool their income but we have very deliberately kept ours separate as with the unpredictability of his income, I could lose everything very quickly. We have set things we each pay for. He saves nothing (never has enough) and I save on our behalf. Late paying customers and tax bills are a major headache. I can't understand why it is so difficult to work out how much tax he will owe. He has an accountant and I think he must be useless as it is a shock every time.

Sorry, not much help, just whinging with you!

Is he charging late payers? Or is he worried that they won’t use him again if he gets funny. The thing he has to think about is he’s not a charity and really there has to be a penalty for people who pay late and they need to cover any bank charges incurred. I know this is a minor point in the grand scheme of things but wanted to say it 😂 Good luck OP.

OP I work in business lending and we have a saying we always apply when assessing an application: "turnover is vanity, profit is sanity but cash is king".

Is this business truly viable if he's not been able to contribute to your household finances for the best part of five months? Does your DH have a relationship manager from the bank who could talk to him about the cash flow cycle of this business - an invoice factoring facility or an overdraft might help.

Tbh I couldn’t bear to let him loose with an overdraft as he’s so bad at managing money but talking to the business bank advisor is a good idea.
Willow- exactly the same. I can’t mix our finances up because of the risk of bills in my name not being paid. It’s a constant worry!