Do you have an irregular income? If so, a savings account is your new best friend.
While most people’s lives center around receiving a regular paycheck, many have jobs or professions where their income is sporadic such as those on commission or who are self-employed. It can be exhausting living to the fullest for a few weeks or months then have to pull back and wait for more money to come in. For those with irregular incomes, here are 6 key steps to help you move forward financially.
With an irregular income, you start with your expenses and work in timeframes, say monthly or quarterly. Let’s look at monthly.
Determine what bills and expenses you must pay and put them on a calendar by the due date. Total the amounts. The amount you totaled is how much you need each month.
Look back at your lowest earning month last year. Would the amount you earned then cover your total in Step 1? If not, calculate how much you are off. This is the first amount you want to make sure you have saved. Now going forward, if you have a similar low earning month, you can easily cover your expenses.
After you save the amount in Step 2, your second goal is to build your savings to cover all of your monthly expenses. This is the total in Step 1. For some, this may be where you start.
Now that you are setting aside 1 month’s reserves for bills and expenses, let’s look at your everyday money. Think about how much you want to allot for personal spending and nonessentials. This will be your allowance. As you receive income, give yourself a spending allowance. Depending on how much you bring in, you can also pay ahead on some bills. Watch yourself with your allowance. You don’t want to be too generous if your aim is financial security.
Next, save the money that is left until you can cover 3-6 months of living expenses. If saving is a challenge, factor it into your monthly expenses and treat it like a bill.
Once you’ve built your reserves, start making plans. There’s investing, large purchases, etc.
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