Archive for July 2012

Irregular/Seasonal/Cyclical Income Budgeting – Part 3

In this series of posts, we are learning how to manage the home economy when it is powered by irregular income.

Over the last few posts, we have learned the first two steps to prosper with irregular income and put away the feast/famine lifestyle forever!

Step 1 – Recognize it!  You must recognize that you are living with irregular income!

Step 2 – Determine monthly expenses  It is important to understand how much income is necessary each month to ensure that the household operates smoothly and free from the feast/famine lifestyle.

Today, we look at the next step – Save up at least three months of monthly expenses.

Step 3 – Save up at least 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!

WHY?!!!  You might be asking this question.  Why on earth should I save up at least three months worth of expenses?  Man, I am glad you asked that question!

Let’s say that you have monthly expenses of $3,000.  This means that you need to have at least $9,000 in your Known Slumps Fund.

Let’s look at a year’s worth of expenses.  Now, it is easily seen that this person has earned enough to make it this year.  They have taken in $36,500 for the year.  BUT look at how irregular the income is!  Have you seen something like that before in your business?  This causes life to be CRAZY.  In January, you are eating ramen noodles like they are going out of style.  February through April are decent, but then it dies again May through July.  Famine of the worst degree!  All of the sudden, August through October are awesome!  Feasts abound!  Then November and December come in with back to back terrible incomes.  Back to the ramen noodles!

What should you do?  Get a Known Slumps Fund that equals three times your monthly expenses!

Let’s see what difference that makes!

When you look at this chart you realize the POWER of having three months expenses in the bank!  Whether you have a $500 month or a $6,500 month, you live on $3,000 that month.  That means that you get to EAT!!!  That means that you can save money (remember the monthly expenses includes retirement savings!).  That means that you can have some fun each month!

The Known Slumps Fund absorbs the irregularities of your income!  Fill up your Known Slumps Fund – it will take so much stress out of your life!!!

Question of the Day:  Which is more important to you – Debt reduction or funding your Known Slumps Fund?

Obtain free tools by clicking HERE and purchase books/materials by clicking HERE.

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Irregular/Seasonal/Cyclical Income Budgeting – Part 2

This is part two of a series focused on how to prosper while earning irregular income.  It is my goal to help you stop living the feast/famine lifestyle that is so often associated with irregular income.

As we focus on today’s step, it is helpful to review the previous step.

Step 1 – Recognize it!  To avoid living the feast/famine lifestyle, you need to recognize that you are earning irregular income.

The next step is to determine how much money is necessary to make the household operate efficiently for each month.

Step 2 – Determine monthly expenses

To determine your monthly expenses, you should pull up a monthly budgeting form and do the following.

  1. Fixed Expenses  Enter all of your fixed expenses – house payment, utilities, gasoline, car payments, credit card payments, groceries, cell phone, childcare, etc.  This also includes SAVING for retirement!
  2. Variable Expenses  Enter the average of all of your variable expenses – clothing, spending money, entertainment, dining out, etc.
  3. Known, Upcoming Non-monthly Expenses  This is a KEY STEP!!!  If you do not add in all of those known, non-monthly upcoming expenses, you will continue to live the feast/famine lifestyle (more likely the famine lifestyle!!!!).  These type of expenses are BUDGET-BUSTERS.  Here is what I do.  I list all of 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.

EXAMPLE == Known Upcoming Non-Monthly Expenses ==

So in this example, I would include a line item of $483 in my monthly budget for Known, Upcoming Non-monthly Expenses.  This would allow me to bring a stop to the feast, famine lifestyle!!!  Want to read more about planning for known, upcoming non-monthly expenses?  Click HERE.

You now have a monthly budget that will change very little through the year and have successfully completed Step 2Determine monthly expenses!

Now, of course, the trick is to have enough cash on hand every month to make this monthly budget work!  Ahhhhh, that my friend, will be discussed tomorrow!

Question of the Day:  What have been the biggest budget-busting expenses you have experienced?

Looking for additional Personal Finance Resources?  You can obtain free tools by clicking HERE and purchase books/materials by clicking HERE.

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Irregular/Seasonal/Cyclical Income Budgeting – Part 1

There is a large group of people whose family economy is powered by irregular income.

Real estate agents, hair stylists, commissioned salesmen, and business owners all experience 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 how much they will make this month, so it makes budgeting impossible.

I say that not only is it possible, but people with irregular income need a budget more than anyone!!!

In this series of posts, I will explain how to budget with irregular income.  Here’s a hint – It’s EZ!!!

Step 1 – Recognize it!

You must recognize that you have irregular income!  If you have ever starved to death 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 of the Day:  If your family economy is powered by irregular income, what do you do to prepare for “off” seasons?

Looking for additional Personal Finance Resources?  You can obtain free tools by clicking HERE and purchase books/materials by clicking HERE.

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4 Reasons It Is Hard to Budget

As I assist others in the creation of budgets that actually work, I see certain issues that crop up very frequently.  In fact, here are four reasons that budgeting is difficult for many people.

4 Reasons It Is Hard To Budget

1.  Unwillingness to change behavior.  A refusal to recognize that INCOME – OUTGO = EXACTLY ZERO will not eliminate this fact from being reality.  If someone is unable to pay their bills, but they are still getting weekly manicures – something is wrong!  If someone is unable to pay their bills, yet are still spending a ton of money eating at restaurants – something is wrong! Behavior MUST change in order to move from “surviving” to “thriving” financially.

2.  It is not about money at all.  It is a TRUST issue.  You want to see power struggles in a marriage? Get them to talk about their money!  I believe a lack of trust is a HUGE reason that it is hard for many couples to budget.  It is about trust.  Here are some of the questions being asked.

  • Do I TRUST you enough to put our money together into a single checking account?
  • Do I TRUST you enough to let you pull cash out for spending money?
  • Do I TRUST you enough to follow our written plan – the budget?
  • Do I TRUST you enough to hear your opinion about where we should spend our money?
  • Do I TRUST you enough to believe that we really need to spend that much money at the grocery store?
  • Do I TRUST you to do well in the future! – Because you have messed up with money in the past!

3.  One spouse is not interested in working with the other.  This will kill a budget before it ever starts!  I have seen multiple examples where one person works like crazy to get their money in order, only to have the unfortunate surprise that their spouse has run up a huge credit card bill, or shows up with a new car, or buys a new boat, or signs up for an expensive vacation, or … The list goes on and on.  When this occurs, the “behaving” spouse (who has been following the spending plan) becomes very tempted to throw in the towel and join in with the frivolous spending.  They reason, “Well, if he/she can have what they want, I deserve it too …”  Couples who do not work together on major financial decisions run a high risk of not maximizing their financial potential.  They also run a higher risk of divorce.

4.  Failure to recognize that there is an “INCOME” portion to the INCOME – OUTGO = EXACTLY ZERO equation.  Seriously, I can’t believe I have to write this, but it is SO true!  I have people show up for counseling, and they are not working!  Now, I can understand a couple of weeks without work (maybe), but I REALLY DO NOT UNDERSTAND HOW SOMEONE COULD NOT WORK FOR SIX MONTHS!  How is this possible?  GO TO WORK! DO SOMETHING! Go get a job.  I don’t care if it makes someone feel sad to take a job at McDonald’s!  It makes me feel sad when they draw welfare for 6 months when they have ABSOLUTELY NO REASON that they cannot work – except for “it makes me feel bad”.  Waaah!  Earn some money.  It will help cure depression.

Well, I have ranted enough today.  I know that it can be difficult to budget, but I believe that you can do this!  I believe that you have the know-how, the capability, and the inner-strength to work together with your spouse, avoid the debt trap, develop a plan for your life, and have fun doing this together!

YOU CAN DO THIS!

You CAN have a budget that really works!  Check out our FREE BUDGET TOOLS to get started.

My book, I Was Broke. Now I’m Not., can help you learn to live and operate with a monthly budget and begin to fund your dreams. Purchase your copy today and get started!

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ING: How Much Money Do You Need To Retire?

If you have read this website with any regularity, you will know that I am a freak about having a financial plan.  I want a written and very detailed plan for anything related to my finances.

One thing that I teach during live events is the importance of calculating how much money you need to retire.  It is also taught in my book, I Was Broke. Now I’m Not.

It is SO IMPORTANT to know how much money is needed to retire well.

How much money do you need to retire?

One of my favorite on-line banks, has created a terrific website to help you answer the question. I went to the website and calculated my number, and it FIRED ME UP!!!

I enjoyed the brief exercise so much that I want to CHALLENGE to everyone today to take five minutes to complete the following two tasks (trust me, it will be worth it):

  1. Calculate Your Number at INGYourNumber.com
  2. Calculate Your Number using the JosephSangl.com “Retirement Nest-Egg Required Calculator“.

Are YOU going to be able to retire well?

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