Archive for February 2015

4 Budgeting Steps for Irregular Income – Step 3

In this series of posts, we are learning how to manage your income when it is irregular or seasonal. 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 ONE  Recognize it!
You must recognize that you are living with irregular income!

STEP TWO  Determine monthly expenses
It is important to understand how much income is necessary each month to ensure that your household operates smoothly.

STEP THREE  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? I am glad you asked that question!

Irregular Income Image 2

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.

KUE Income-Outgo Only

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 $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 down 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!

KUE Balance

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 savings!). That means that you can have some fun each month!

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

Get a copy of any of our FREE tools located HERE

4 Budgeting Steps for Irregular Income – Step 2

Are you currently living with irregular or seasonal income? Interested in learning how to prosper while earning irregular income? It is my goal in this series to help you stop living the feast/famine lifestyle that is so often associated with irregular income. As we focus on today’s step, lets review the previous step.

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

STEP TWO  Determine monthly expenses
One of the key steps to budgeting is knowing how much income is necessary each month to keep your household running smoothly. That is why it is so important to determine your monthly expenses.

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

  1. Fixed Expenses – Enter all of your fixed expenses – house payment, utilities, car payments, credit card payments, cell phone, childcare, etc.  This also includes SAVINGS!
  2. Variable Expenses – Enter the average of all of your variable expenses – gasoline, groceries, 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, upcoming non-monthly 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.  Then I divide that number by twelve to determine how much I need to save per month. Lastly and most importantly, I set up that amount to be auto-drafted into my Online Savings Account, Capital One 360. (If you’re looking for an Online Savings Account, just click HERE).

==Known, Upcoming, Non-Monthly Expenses Example==

KUE Example

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!! You now have a monthly budget that will change very little throughout the year and Step Two is complete!

Stay tune for Step Three where we’ll tackle the toughest part of irregular income – having enough cash on hand when you need it.

4 Budgeting Steps for Irregular Income – Step 1

Irregular Income Image 1

I know that there’s a large group of people whose family economy is powered by irregular, seasonal or cyclical income. As I’ve continued to travel and meet people this recurring question comes up – “How do I budget when my income is irregular, unpredictable or seasonal?” In this blog post I want to address this exact question.

Real estate agents, hair stylists, commissioned salesmen, and business owners all experience cyclical income.

Several times, I’ve heard from people it is impossible to budget when you have this type of income. They say budgeting is impossible because they have no idea how much they will make each month. I say it is not only possible, but people with irregular income need a budget more than anyone!!!

For this very reason, I’ve broken budgeting with irregular income down into 4 steps. And here’s a hint – It’s EZ!!!

STEP ONE  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!

If your family economy is powered by irregular income, what do you currently do to prepare for the “off” seasons?

In Step Two, we’ll go over actually PREPARING a budget with cyclical income!

 

5 Easy Steps to Budgeting – Step 5

In this series of post, I’ve been sharing the process that Jenn and I followed to develop a budget that actually worked! We have developed a monthly spending plan or budget every single month since that first one way back in July of 2003!

Here are the steps that we’ve already discussed.

STEP ONE  Decide to decide 
Until you decide that budgeting is crucial to taking your finances to the next level, you’ll be stuck! Decide to live differently and decide to start winning with your money NOW. 

STEP TWO  Determine the income (take-home pay) you will receive during the NEXT month
Planning ahead allows you to determine if there are any gaps. By being ahead of the game, it provides you an opportunity to avoid “budget-busting” events.

STEP THREE  Enter all of your expenses for NEXT month 
Tell your money where to go!

STEP FOUR  INCOME – OUTGO = EXACTLY ZERO 
Whether you make $1,500 per month or $50,000 per month, it is limited. If you spend more than you make, you will erode savings or turn to debt!

STEP FIVE  Follow the budget!
Now you know all the steps. You have a spending plan for next month. Now is the time to live it. YOU told your money where to go now YOU make sure it goes there!

I’ve been able to see people completely break free of debt. I have seen people pay off their mortgages! I have seen marriages restored! I have seen the hopeless become hopeful!

Following a budget is about more than money. It’s about becoming FREE! Not being held by the chains of debt and despair. You will become financially free if you stick to a budget. This is a decision you will not regret.

Maybe you have read this series in a guarded, protected way while wondering, “Will this work for me? I don’t want to get my hopes up. I’ve tried this before.” I say that YOU CAN DO THIS!!! I believe in you! Why? Because I was there! I had an average bank balance of $4.13 and the STRESS was awful! The shame was real. I did not know how to break free.

Planning my spending one month in advance was what broke Jenn and me free! It will work for you too!

Why not pull up a free budgeting tool and get started winning with your money today?

If you get paid monthly or have at least one month of expenses in the bank, use our Monthly Budget Form. If you are living paycheck-to-paycheck, use the Weekly Budget Form.

If you would like to learn more about how to budget, check out my newly revised book, I Was Broke. Now I’m Not. Click HERE to order!   

5 Easy Steps to Budgeting – Step 4

In this series of post, I am sharing the process that Jenn and I followed to develop a budget that actually worked!

Here are the steps that have already been shared.

STEP ONE  Decide to decide
You can not start winning with your money until you decide that budgeting is crucial to taking your finances to the next level.

STEP TWO  Determine the income (take-home pay) you will receive during the NEXT month
The key word in Step Two is NEXT. A budget must be completed BEFORE the month begins and BEFORE the money ever arrives.

STEP THREE  Enter all of your expenses for the NEXT month
This is where you get to actually spend your money on paper before the month arrives!

STEP FOUR  INCOME – OUTGO = EXACTLY ZERO
YOUR INCOME IS LIMITED! If you bring home $3,000 during the next month and spend $3,208, your spending plan will not work! Where will the extra $208 come from? It will have to come from savings OR from debt – usually in the form of a credit card. If you spend more than you make, no matter how much you make, you WILL have to make that up somehow!

In Steps Two and Three, we entered all of the income and expenses into the budget and, no surprise, the OUTGO exceeded the INCOME. You can see the entire budget HERE.

budget image

So OUTGO exceeds INCOME…now what? We have two options.

  1. Increase the INCOME – you could get a 2nd job, work overtime, turn a hobby into a business
  2. Decrease the OUTGO – get rid of some expenses

NOTE: This is not a “perhaps, perhaps, perhaps” type of budget! This is how the family will ACTUALLY spend their money next month! Remember – if your budget is not 100% relevant for you and your family, you will ignore the budget and use it to start a fire in your fireplace!

What expenses can be eliminated from the example budget? Again, you can pull a copy of the budget HERE.

After working together on their budget, the family decides on the following changes.

5 Easy Steps Image - Changes

SUCCESS!! INCOME – OUTGO = EXACTLY ZERO!

If you want to see the entire EXACTLY ZERO budget, you can view it HERE. You might be saying, “These people are CRAZY! They cut out 1/2 of their dining out, entertainment, blow money, and all of their babysitting money!” I would say – “NOPE! They have had enough. They are so sick of living paycheck-to-paycheck that they are willing to live differently and change their lives forever. All because of a little sacrifice now!”

We only have ONE step left!!