When budgetting, do you also include "lucky" income?

[moustacheverte]

Hi all,

By "lucky" income, I don't mean gambling but rather one-off kinds of income. For example, we churn credit cards and they often give cash rebates or cash back as you use them. Or one bank will give you 400$ as an incentive to open a chequing account and making a deposit. Or you get a tax refund. Or the family gives you cash as a present or donation. This kind of things.

They are "lucky" because they are not recurring or predictable as, say, a salary. Do you still include them in your budgets?

Thanks,

[MDM]

Including anything predictable seems reasonable.  Likewise, not including anything unpredictable seems reasonable.

Calling a tax refund unpredictable, however, seems unreasonable.  You should be able to plan your tax liability for 2015 today, at least for the portion based on salary.  Index fund distributions are also reasonably predictable. 

If you are a prolific day trader, then your capital gains (or losses) aren't so predictable, but that would bring up larger issues beyond budgeting. ;)

[Cathy]

If you are a prolific day trader, then your capital gains (or losses) aren't so predictable, but that would bring up larger issues beyond budgeting. ;)

As a trivial aside, since the OP reports a location in Canada: If you are a "prolific day trader", the CRA may take the position that your trading operation is in fact a business and that your income therefrom is subject to ordinary income tax as business income, rather than being capital gains subject to the more favourable capital gains rate. For a very old CRA document on this topic, see Bulletin IT479R.

The CRA also has been known to use this argument to tax income inside tax-sheltered accounts if it believes you are using the account to conduct a business (including a trading business), since business income is not tax-sheltered.



As for tax refunds, the correct account approaching is this: as soon as you overpay tax, update your "overpaid tax account" to reflect the total amount of tax overpaid throughout the year. When you finally receive the refund, treat it as a transfer from your "overpaid tax account" to your "checking account", and not as income. Think of the "overpaid tax account" as a bank account that does not allow withdraws until a specified date.

[lakemom]

No, we don't budget those types of income.  When they come in we send them to savings unless they are gifts for specific purposes then we honor the giver by using the gift as intended (usually restaurant or store gift cards).

[moustacheverte]

Thanks for your answers. How do you anticipate when you overpaid taxes?

[Retire-Canada]

They are "lucky" because they are not recurring or predictable as, say, a salary. Do you still include them in your budgets?

Thanks,

If they are unpredictable I don't see how you can include them in your budget.

You can have a plan to simply invest all these "lucky" $$ that way it doesn't matter if you get $0 or $10K in one year your budget is unaffected.

-- Vik

[Guesl982374]

No, not worth the effort.

[laka]

We put those towards our existing goals.  So any "extra" money (income from unpredictable side hustle, tax return, bonus pay) is immediately put towards our debt.  Once the debt is gone, they'll immediately go towards our savings.  I've tried directing those elsewhere, but it usually just ends up disappearing towards general spending.  Now as soon as the money is deposited I move it to debt, so it's like it wasn't even there, but my total debt is lowered.

[Sibley]

I don't include them in the budget. Any "lucky" income is currently put towards debt/paying cash for something that will be paid for anyway and the timing happens to fit.

[Zikoris]

We don't "budget" per se, but we do include extra income from things like buying/selling, gifts, or free money from banks in our official records, so it eventually factors into our annual savings rate calculation. I guess you could say we save it, since our spending doesn't change regardless of income.

[chicagomeg]

Small amounts usually go to fund travel or other fun things. Usually when I sign up for a CC I already have something in mind that I am going to use the bonus for, like a new bike, or paying for a weekend trip, etc. Larger things, like my husband's bonus from work, just go towards general savings. We're starting to build a downpayment fund so that will be the recipient of all our "luck" for the next few years.

[nubbs180]

I keep a "miscellaneous income" tab on my budget.  Anytime I sell something on craigslist, or engage in any of my side hustles, it gets accounted for in that category.  Also any one-off windfalls go there.  It all gets accounted for, and in a way that states it isn't predictable.  My only exception to this is gift cards, because they are more or less earmarked for spending.  If we are given a gift card, we just spend it, and only account for the extra balance paid over the gift card amount in-budget.

But I'm a person who loves budgets, and has a handful of random side hustles that are nice to track.  If you don't want to track it, it makes less sense to designate it. 

[NumberCruncher]

Thanks for your answers. How do you anticipate when you overpaid taxes?

If you were in the US, this: http://www.irs.gov/Individuals/IRS-Withholding-Calculator

For Canada...I think this: http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/pdoc-eng.html?

Not sure if you can change withholding like in the US, but you should be able to at least estimate somewhat accurately your refund or taxes due at the end of the year.

We only budget our spending, anything extra is just icing on the cake (by which I mean we save it/invest it). :)  Only exception is when it would be difficult to separate...like gift cards, since they would reduce our displayed spending, but it's not worth it to add on $5 or $10 here or there.

Edited for clarification

[MDM]

Thanks for your answers. How do you anticipate when you overpaid taxes?

By calculating this year's taxes ahead of time.  E.g., as of now we have a very good idea of what our 2015 taxes will be, and have adjusted withholding accordingly.  Does that make sense?

[Bob W]

The best thing would be to create your own luck more frequently.  If you are a card churner make that into a regular thingy.   

I'm not big on budgets if you are a semi advanced Mustachian as you should already be maximizing your income and minimizing your spending in general.   I suppose it is fun to challenge yourself to go from say 50-70% savings rate and a budget helps with that. 

But a budget could also encourage you to land in Dave Ramsey land where you shoot for a 10% retirement savings with an emergency fund on the side.   Not that there is anything wrong with that. 

So my answer is "definitely include lucky income and make way more of it."

[Kaspian]

I don't include that sort of money in budgets, but every single penny in (even if it's a quarter found on the ground) or out gets recorded in Mint.  I believe it's necessary to track an accurate saving rate.  (It may not make any difference for one year, but over time?)

[moustacheverte]

Thank you all for your help!

[coffee]

The best thing would be to create your own luck more frequently.  If you are a card churner make that into a regular thingy.   

I'm not big on budgets if you are a semi advanced Mustachian as you should already be maximizing your income and minimizing your spending in general.   I suppose it is fun to challenge yourself to go from say 50-70% savings rate and a budget helps with that. 

But a budget could also encourage you to land in Dave Ramsey land where you shoot for a 10% retirement savings with an emergency fund on the side.   Not that there is anything wrong with that. 

So my answer is "definitely include lucky income and make way more of it."

My thoughts exactly.