The first two years we were married, we had the same income every single month. It wasn't much, but we knew exactly what we were going to be paid. We could budget and plan for the future because we knew exactly what our income would be.
The third year of marriage, we began to receive irregular income. One month would be a "full paycheck" and the next it would be reduced. On and on this went for YEARS! In the beginning, it was frustrating. We couldn't get ahead and we were using debt to keep us afloat.
Out of desperation, we got our heads together and figured out how to win on irregular income. We committed to keeping a budget, working extra jobs, and doing whatever it takes to WIN with our finances. Little did we know, this would set the pace for our future.
Today, our income varies from month to month. We own our business. I work in a family business. We take on extra seasonal jobs we LOVE to do. Some months our income can vary by the hundreds and some months by the thousands! I am truly grateful for this crazy road we are on.
Many people, especially small business owners, live with this reality every single day. This sort of income is normal for many people and all it takes is a little extra organization. You can make it work. If WE can do it, YOU can do it.
Get our of debt. Have an emergency fund.
If we could tell you the ONE thing that has helped us to THRIVE with a varying monthly income, it would be living without debt. In fact, we make it a goal to live without as many payments per month as possible! Some monthly expenses, can't be moved (like your light bill and FOOD!) We have learned the hard way, the fewer payments you have each month, the more FREEDOM you have to reach your goals!
We worked hard to pay off all our consumer debt in 2008. We paid off $18,000 in 18 months. We committed to saving cash to pay for our cars and built up a 3-month emergency fund. We are currently working on paying off our mortgage. WOOT!!!
Know your base income
The next step to THRIVING on an irregular income is to analyze your monthly income. Go back through the previous year and write down what income you brought in each and every month. Do a little digging and research! Study the trends.
What is the average amount of money you bring in each and every month?
What is the lowest amount of income you bring in per month?
Do you see any common trends month after month?
As a family, we pick our lowest monthly income as the base for our budget. We know we can pay our bills, put food on the table, and give with this money. It is our base. When we know we can live on it. We set our monthly budget within this amount.
We understand some families on irregular income but have 0 income one month and a HUGE month the next. Study the trends in for your family. What is your average income per month over the year? Set a conservative monthly budget. Consider setting up a separate savings account just for those months when you receive no income. You can pull from this separate account to pay your bills.
We made a fictional family for you below. This is our fake family's irregular income. If you notice, our fake family makes between $3000 and $5,000 per month . In March, our fake family gets a bonus or sells a new product for a small business. YEAH!!!
SMITH FAMILY INCOME
The minimum our fake family brought home per month is $3,000 to $3,500. We would advise this family to create a monthly family budget that was at or below $3,000, including saving and giving.
The reason for this is simple: even on a lower income month, you can keep the lights on and food on the table and slowly meet your goals. You know exactly how much your family needs to survive for a month! Work hard to make your budget fit within this number.
We have done this for years and see a lot of good things. When we have a "good month", we can aggressively save for a big purchase, give extra, or spend it on a NEED. We have worked hard at creating a workable monthly budget that can grow and flex with us over time to meet our families needs.
Set your goals. Know your priorities
If you don't have clear goals and priorities, an irregular income can sink your financial future FAST. On months you get a big bonus or any extra cash, you may be tempted to spend it all on things you really don't need. You can quickly look up one day and all your hard earned cash is GONE.
What do you want to do with your money? Do you want to be givers? Do you want to pay off your debt? Do you have tuition bills you need to save for? Would you like to pay cash for a new car next year?
We recommend having CLEAR yearly and 5-year goals. When we get any extra income, we know what vacation that money maybe going towards. We know how much needs to go into the car fund for Brad's next vehicle. We set aside a small amount for a fun night out or a special treat.
We talk through HOW this money is going to be spent before we spend it. If we get a bonus, I don't spend it all in one sitting. I know our goals. I know where the money needs to go. We have talked about it and we agree upon it. I move money into other savings accounts before we are tempted to SPEND.
This is the power of clear goals. They guide you and YOUR money. Set your goals and know your priorities.
Be organized. Be diligent.
Life is fast. We get it. We have jobs, kids, and a home to run. Staying organized is a PAIN. We don't always manage things perfectly and that's okay.
We try hard to keep lines of communication OPEN when it comes to money. We both have our hands in the money process at our house. We make decisions together. We listen and value one another's thoughts and opinions.
Over the years, we have discovered the magic of MULITPLE bank accounts. Currently, we have 7 different savings and /or checking accounts with our local bank. We are striving to be a debt-free family. Multiple accounts help us streamline and organize our savings goals.
If we get any extra income in a month, usually that money is transferred quickly into one of the many savings accounts we have. Currently, we have a savings account for our next car purchase, one for vacations, one for emergencies, and one for giving.
The truth is, we would never get to do half the things we've done in the last 5 years without these tips! They have CHANGED our life. We would have never paid off all our debt or started our own business if we hadn't learned to deal with an irregular income. I am thankful for the journey.
Your turn, what are your best tips for thriving on an irregular income?
What are your biggest hangups? We'd love to know!!!