Let’s Plan The Irregular Income.
I am often asked by readers how to be engaged in financial planning properly, if the income is obtained irregularly and its size varies from time to time. As you know there are a lot of people with the irregular income. They are not necessarily engaged in their own freelance business or they don’t stand in a long queue of professionals waiting for orders in the months ahead. It’s just enough to work for a salary plus commission which is not guaranteed. Of course there might be many other variants.
Financial planning requires a certain level of stability of income and expenditure. When only one of these options is table then there’s a high risk not just to achieve financial goals but to lose money. It contradicts the original purpose of financial planning. A very important goal of financial planning is to reduce the stress associated with money and confidence in the future. With the irregular income, without a proper approach stability can’t be guaranteed.
A typical human behavior with the irregular income is to spend a lot of money all the time. As you might have guessed savings are absent in this case. This also includes getting heavily into debt. If you have rather an unstable income then you should act immediately, otherwise you can ruin your future. By the way let me give you some recommendations.
Determine your average monthly income. Take your income over the past months and calculate the actual monthly income. Do not try to inflate the average income, taking only the best months because in any business there are black and white stripes. Determine your monthly mandatory spending. Try to reduce costs or to transfer them to a later date, if the amount hasn’t increased due to inflation.
If you have savings then you are lucky, otherwise it will be harder for you to meet this objective. I think that you need to put aside at least 3 months to form a certain back up fund. If you trust banks, keep the money on a special bank account with an appropriate interest.
Turn your irregular income in the regular one. Once a month you should withdraw up to 80-90% of fund from your account. In fact you’d better do this once a week and put 20% in your “weekly” envelope. In such a way your reserve fund will be formed. Even if you have earned much more than your average monthly income, do not spend this extra money. You’d better put aside this amount to your reserve fund. Your reserve fund will be your greatest hope in this case. With this reserve fund your irregular income won’t be a disadvantage any more. On the contrary you’ll acquire new opportunities with this approach. Be wealthy and happy!
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