Do you have irregular income? Maybe it is seasonal or cyclical.
There is a large group of folks whose family economy is powered by irregular income. Real estate agents, hair stylists, commissioned salesmen, and business owners all experience seasonal or cyclical income.
Folks who live with this type of income often tell me that it is impossible to budget. They say that they have no idea what they will make this month, so it is just impossible. I say that not only is it possible, but that folks with irregular income need to be budgeting more than anyone. It is my goal to help you stop living the feast and famine lifestyle that is so often associated with irregular income. Here’s a hint – It’s EZ!!!
Step 1 – Recognize It!
To avoid living the feast/famine lifestyle, you must recognize that you have irregular income. If you have ever suffered during the “off” season, you KNOW what I am talking about! In order to stop having your life severely impacted by “off” seasons, you must prepare! Question: If your family economy is powered by irregular income, what do you do to prepare for “off” seasons?
Step 2 – Determine Monthly Expenses
Determine how much money is necessary to make your household operate efficiently for each month. To determine your monthly expenses, you should pull up a monthly budgeting form and do the following.
Fixed Expenses
Enter all your fixed expenses – house payment, utilities, gasoline, car payments, credit card payments, saving for retirement, groceries, cell phone, childcare, etc.
Variable Expenses
Enter the average of all your variable expenses – clothing, spending money, entertainment, dining out, etc.
Known, Upcoming Non-Monthly Expenses
If you do not add in all of those known, non-monthly upcoming expenses, you will continue to live the feast/famine lifestyle. These types of expenses are BUDGET-BUSTERS. Here is what I do. I list all the known, upcoming non-monthly expenses and place their annual cost next to them. I then divide that number by twelve to determine how much I need to save per month.
There are lots of expenses that we all have that are non-monthly, but we know how much they will cost us. Some examples are car insurance, car tags, life insurance, or gym memberships. This allows me to bring a stop to the feast, famine lifestyle by saving for items that I know are coming.
You now have a monthly budget that will change very little through the year! Question: What have been the biggest budget-busting expenses you have experienced?
Now, of course, the trick is to have enough cash on hand every month to make this monthly budget work!
Step 3 – Save Up Three Months’ Worth Of Expenses
WHAT?! I am sure that is what many of you are saying right now! Yes, I did say that you need to save up at least three months of expenses. Remember in step two that you calculated your monthly expenses? Multiply that number by three, and you have your savings target.
I call this savings the “Known Slumps Fund”! You know that slumps are coming, so be prepared! This is HUGE in eliminating that horrible feast/famine lifestyle!
Step 4 – Become Personally Debt-Free And Operate Your Business Debt-Free
Now, I am certain that you believe I have completely fallen off my rocker. You might be saying, “Joe, you are crazy! There is no way I can do this!” Well, I have seen many people operate their business debt-free.
What are the advantages of operating a business debt-free? Let me count the ways!
Monthly expense load drops! There are no interest payments to make!
Your business can absorb downturns much more effectively. Again, there are no interest payments to absorb!
Breathing room. It is amazing how much stress a pile of debt brings on.
When you spend your own real money, you will manage it better. I don’t know why this is, but if I am spending someone else’s money (i.e. the banks) I am much more susceptible to making a riskier decision! When I am spending my money, I am much more likely to do thorough due diligence before doing a deal!
Question: What are some other advantages of operating a business debt-free?
Budgeting With Irregular Income Is Possible
Recognize that you have seasonal or cyclical income so you can avoid the feast-or-famine lifestyle. Next, determine what your monthly expenses are. Then save up three months’ worth of expenses in a “Known Slumps Fund” to help you weather those months when your income dips drastically or stops. Finally, live personally debt-free and operate your business debt-free.
This isn’t something you can achieve overnight, but this goal will help you make tough choices along the way to set yourself up for long-term success. Remember, budgeting with irregular income is possible!