What a Year of Variable Hours Actually Looks Like

Why the range is not enough

A range tells you the extremes and nothing about how often you are near either. Two households can report the same range and be in completely different positions: one is usually near the top and dipped twice, the other is usually near the bottom and had two good months.

Everything that follows from the number depends on which of those you are, and the range cannot tell you.

The four numbers worth having

The fourth is the one people have never worked out and the one that changes decisions. A household with four bad months scattered through a year is in a very different position from one that had four in a row, and both look identical from a range.

Building it, in about an evening

1. Take twelve months of bank statements and write down what actually arrived each month from work. Not what was invoiced, not what was rostered, what arrived.
2. Do it by the month the money landed, even where that splits a pay period. The household's costs arrive by calendar month and this has to line up with them.
3. Add anything else that arrived reliably and separately. Keep it in its own column so you can see the household with and without it.
4. Write the household's monthly running cost beside the column. One figure, covering what leaves regardless.
5. Mark every month that fell below that figure, and then count the longest unbroken run of marks.

What the shape tells you

If the year is seasonal

Then the household does not have a variable income so much as a predictable one arranged inconveniently. That is a much better position than it feels like, because a known shape can be planned around. The useful figure becomes the size of the trough rather than the size of the range.

If the year is genuinely random

Then the median is the number to hold in mind and the worst month is the number to be able to survive. Households in this position frequently plan against the good months without meaning to, because those are the ones they remember.

If the year has one cliff in it

A single long run of low months, usually caused by one thing ending, is not variability at all. It is an interruption, and it belongs to a different question, which is what a household would do if that happened again and lasted longer.

That version of the problem is covered in planning for a period without household income, which starts from the interruption rather than from the pattern.

The number is for using, not for worrying about

Households often avoid this exercise because they expect the answer to be discouraging. It is worth saying that it very frequently is not.

The common outcome is that the household discovers it has been carrying an anxiety sized for its worst month while actually living near its median, and that the gap between the two is smaller than it felt. That is a useful thing to find out on a quiet evening.

What to do with the numbers

They are inputs to other questions rather than answers in themselves. Three of those questions are worth naming.

• How many months the household could run on what it can reach, measured against the running cost rather than against the median.
• Which figure to use as a baseline when sizing anything, which is a decision rather than a calculation.
• Whether the household is actually short of income or short of predictability, because the two have different remedies.

The second of those is where this article hands over. Which figure to treat as the baseline picks up from exactly here, and identifying essential expenses during an interruption covers the cost side of the same page.

A worked example, with the numbers left out

The method is easier to see than to describe, so here is the shape of it. No amounts appear below, because the amounts are yours and the pattern is the part that transfers.

A household writes down twelve months of what arrived. The low month and the high month are roughly two to one apart, which is the point at which most people stop and describe their income as unpredictable. Then they write the household running cost beside the column and mark every month that fell below it.

Five months are marked. That sounds alarming until they count the runs. Four of the five are isolated, sitting between months that were comfortably above the line, and only one pair is consecutive. So the household is not short of income across the year. It is short of smoothing across single months, which is a smaller problem with a simpler answer.

The same year, arranged differently

Now imagine those same five marked months falling in a block. The annual total is identical, the range is identical, and the household is in a materially worse position, because it has to survive a run rather than a dip. No summary figure separates those two years. Only the shape does.

That is the whole argument for spending an evening on this. The exercise does not tell you whether you earn enough. It tells you which of two very different problems you actually have.

What counts as income for this purpose

Be generous about what goes in and strict about which column it goes in. Anything that arrived and could be spent belongs in the picture, and what matters is keeping the reliable and the unreliable visibly apart.

• Regular wages, in the month they landed rather than the month they were earned.
• Overtime, tips and differentials, kept in their own column rather than merged into the first.
• A second household income, recorded separately so you can see the household with and without it.
• Anything seasonal or annual, placed in the month it actually arrived rather than spread across the year.

The temptation is to smooth the annual items across twelve months, because that is how they were earned. Resist it. The household spent them when they arrived, and this is a record of what happened rather than an account of what was fair.

Mistakes worth avoiding

1. Averaging the year and planning against the average. Almost no month is the average, and the household never spends it.
2. Excluding an unusual month because it was unusual. Unusual months are the subject.
3. Counting overtime as baseline because it has been there a while.
4. Redoing the whole exercise every month. Once a year, and after anything that changes the shape.
5. Treating the result as a verdict on the household rather than as a measurement of one year.

When to do this again

Once a year is plenty, and the anniversary matters less than the trigger. Three things are worth treating as a reason to rebuild the picture rather than adjust it.

1. The work itself changes shape: a new employer, a new rotation, a season that did not arrive.
2. The household running cost moves, which usually means a move, a new commitment, or one ending.
3. A second income starts or stops, because that changes the floor rather than the range.

Between those, resist the urge to update it monthly. A picture that is being constantly revised stops being a record of a year and becomes a running commentary on the last few weeks, which is exactly the bias the exercise exists to correct.

Where to start

One evening, twelve statements, four numbers. Nothing in it requires a decision and nothing in it commits the household to anything. The wider context for how variable earnings interact with planning here is income protection planning for Nevada households.