The 20th century saw great advances in manufacturing and, therefore, employment, especially after WWII. Reliable, steady employment created a foundation of financial security from which many benefitted, around which an economic system was built.
The 21st century, not so much.
With the rise of the gig economy, more people are trying to understand and yield to the rhythms of irregular cash flow.
Career to retirement coach Saundra Loffredo and I agree that we see many people in both our practices who have created a “portfolio career,” one that includes many components (such as freelance work, business income, perhaps part-time employment etc.) and, as a result, can have multiple sources of income…it’s just irregular income.
I’ve blogged about budgeting with irregular income previously, but there was a need for a refresher course. There are lots of other sources including:
- The Simple Dollar * I really liked the last paragraph starter: “Give yourself some grace.”
- Dave Ramsey
- 99U * I loved this reminder, “Establish a foundation of thrift.”
- Every Dollar
- The Balance
- Careful Cents *I liked this one for business owners/freelancers and her 50/30/20 plan
- If you’d rather watch a video, Lydia Senn offers one (click on this link if the video does not show up in your email: https://www.youtube.com/watch?v=PMhSDXQ8UX8) :
While most of us are saying the same thing (identify your core expenditures, budget around that and save the rest), there might be a sentence that resonates and could make all the difference to you.
As my dear friend Nancy Rizzo says, “Mindset first.” Therefore, we started our discussion at the “I HATE Budgeting (But I Like Having Money)” support group by talking about mindset.
We talked about:
Tackling fear: Once you have researched and considered all the variables, one of the best things you could do for your own peace of mind is to commit to your chosen course of action.
Excitement versus fear: They are almost identical physiological responses. Ask yourself, “Do I feel excited?” The possibilities of making bold life choices can feel exhilirating…or like a panic attack.
Making Ends Meet & Managing Social Settings & Obligations: Get creative & resourceful. What is a less expensive way of doing/having something? As one participant who is recently retired said, “I can do a lot of fun stuff for free.”
As a regular participant said, “It does matter who you’re around.” Indeed! Not everyone will understand or support your life choices let alone your financial ones; best to accept that and find a tribe you can trust and lean on.
Do your friends want to go out to dinner? Suggest going for lunch or coffee instead. Better yet, offer to make them lunch or coffee at your place.
Another support group regular uses the phrase, “It doesn’t make financial sense to me,” when confronted by a well-meaning loved one who has different financial ideas and strategies. That’s good because it asserts your own position without casting judgment on another’s.
On the other end of the spectrum, you can also go overboard bragging about your frugality!
The monthly payment lifestyle: This can be a problem because someone with irregular income cannot always make regular monthly payments (not to mention the problem of focusing on monthly payments rather than calculating the true cost of a product or service). Stated monthly payments can provide regularity for an otherwise chaotic budget, but they also reduce your ability to control (read: reduce) your payment.
The problem with many budgets
is that they don’t address
the unexpected expenses that come up
such as a fender bender for which you have to
pay your insurance deductible,
a pet situation (tests, veterinary care),
For this you need to constantly fund your financial stress reduction account
(savings account for the lay person, emergency fund for the pessimist).
If it’s not funded adequately (as it may not be yet), you’ll have to rely on credit
and make the payments a priority as you also fund your financial stress reduction account.
If you’re going to live with irregular income, you’ve chosen a very special adventure. In the words of attorney Heidi Jones, “Pack light for the journey.” This means, identify what’s really important to you; what’s worth your money? What isn’t?
The basics of my 3-Budget System: Most people with irregular income have some “average” months, some “flush” months and some “lean” months. This could be due to seasonal work/demand for work (such as landscapers and tax preparers), business cycles, lack of sufficient invoicing/payment models or other reasons.
What I help people do is identify each of these months and align the income with the expenses they face. The first thing the client must do, however, is identify their core expenses. This takes a few weeks to track and become aware of spending. Once we have that core budget, we can develop the client’s 3-budget system.
1. The Essential Budget Month(s) – This is for months when income is lower than normal. Live within the core budget constructs, drawing from savings (which is funded through deposits made during average or flush months) if needed.
2. The Average Budget Month(s)– This is for average months. Additional income over essentials goes towards saving, enjoyment, additional debt payments, or all.
3. The Flush Budget Month(s) – This is for when you’re super busy and you’re more likely to require more products and services because you’re not able to manage them with your time devoted to work (such as take-out food, additional child care, or housecleaning). So your essential budget will be increased to reasonably account for that fact. Then, additional money is allocated towards saving, additional debt payments, enjoyment or all.
As our recently retired participant shared, “I want to be free to be the master of my time.” And I might add, the master of her money, too.
Peace be with you!