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?

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  1. Kari on July 17, 2012 at 8:25 am

    Another benefit to running a debt-free business is higher potential profit margin and/or higher sales. Because I run my business debt-free, my overhead costs are as low as possible. I can either use that to generate a higher profit margin than my competitors, while offering the goods at the same price. OR, I can pass some of the savings on to my customers and be able to give some discounts (especially to churches and non-profits) and still make a decent profit. This allows the organization to purchase something that might not fit in their budget otherwise.

  2. RobS on July 17, 2012 at 9:03 am

    Debt free business? Cash flow irregularities are easier to manage… business cycle is so much easier to absorb and work around… flexibility to start or support other business exists… less risk for your employees and their families.

    And finally, the fun of telling someone who wants to do a credit check (like a cell phone company) on you — “Sorry, I don’t really owe anyone anything. I just pay the bill each month. I’m not really a risk.”

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