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Irregular/Seasonal/Cyclical Income Budgeting – Part 4

This series of posts has been focused on how to manage the home economy when it is powered by irregular income.  It is my goal to help you eliminate the feast/famine lifestyle (especially the famine part!!!).

Before we focus on today’s step, let’s review the previous steps.

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

Step 3 – Save up at least three months worth of expenses  This is your buffer that absorbs the wild patterns of your customers!  It allows you to live life smoothly without the feast/famine episodes!

Step 4 – Become personally debt-free and operate your business debt-free

What are the advantages of operating a business debt-free?

  1. Monthly expense load drops!  There are no interest payments to make!
  2. You business can absorb downturns much more effectively.  Again, there are no interest payments to absorb!
  3. Breathing room.  It is amazing how much stress a pile of debt brings on.
  4. 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 make a riskier decision!  When I am spending my money, I am much more likely to do thorough due diligence before doing a deal!

Question of the Day:  What are some other advantages of operating a business debt-free?

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 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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