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!!

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1 Comment

  1. Natalie Kent on February 22, 2015 at 12:13 pm

    While in theory this sounds awesome, I would like suggestions on how to save 3 months of expenses when income is irregular. I have been living on irregular income for years and getting ahead is near to impossible due to the inconsistencies of feast and famine. When feast hits, your playing catch up from famine times. I just don’t see how it is feasible to save 3 months of expenses while in this situation other than getting a side job just to save up for 3 months and that is something not everyone is able to do. So I await your words of wisdom on how to get to this point.

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