How I Handle an Irregular Income

This month will be a little different. I won’t actually be sharing our income and expenses for June. As noted in my post Stolen: $1084, my laptop was stolen. It had Quickbooks and all of my data. While I do have a lot of it backed up, I didn’t have June backed up.

Instead I will go over the process I use to deal with our irregular income. It is one of the top concerns of freelancers, and it was one of my biggest fears when I quit my job.

My check used to come in every two weeks. I could plan exactly what I was going to do with it months in advance. It made me feel secure and safe. Taking the leap from my job felt like I was jumping out of a plane without a parachute!

Fast forward almost four years. Our income is very sporadic. But I have become so accustom to this lifestyle that it is no longer an issue. Even me, a perfectionist that needs to plan months in advance, can get used to it!

These are the steps I use that help me relax.

Our Emergency Fund

Our emergency fund gives me so much peace of mind. I’ve heard a lot of people say that we shouldn’t have so much in savings, we should invest it. My peace of mind is better than any return I could get!

We have 5 months worth of expenses in our emergency fund, and about 2 months worth of expenses in our Heath Savings Account (HSA). If we have no income we could live for at least 7 months.

Planning the Future

I still plan. I actually spend more time planning than I used to. This has been the key to my success. I have to plan because our income tends to be seasonal. We make more money in the summer than we do in the winter. We are working on changing this, but that’s where we are now.

Every two months I go over the future. I have a spreadsheet that details all of the income we are expecting. Since my clients sign on for three months at a time I can predict at least the next few months. Matt’s shows are booked in advance. Usually we know about the next four or so months, but as time passes they book more shows.

It’s hard to predict the future, but I try!

First I figure out how much we have in savings right now, not including our emergency fund. Since we have two bank accounts all I do is add it up. Then I figure out the expected income for each month, and see how far the money will go. I figure out the overflow and then carry it to the next month. I am very conservative in my estimates just in case.

Here is what my spreadsheet looks like:

Savings + Month – Expenses = Overflow

July

$12,055 + $9,200 – $5,100 = $16,155

August

$16,155 + $5,975 – $5,100 = $17,030

September

$17,030 + $2,600 - $5,100 = $14,530

October

$14,530 + $2,050 - $5,100 = $11,480

November

$11,480 + $3,700 – $5,000 = $10,180

December

$10,180 + $400 - $5,000 = $5,580

January

$5,580 + $800 – $5000 = $1,380

February

$1,380 + $400 – $5,000 = -$3,220

So according to this, if we didn’t add any more work, we would be able to pay for everything through February. Then to make myself feel better I add those 7 months of emergency fund if we needed it.

So technically if we only had the work we had today and nothing more we could pay for everything until next September. Now barring any disaster, I know that we’ll have at least some income this winter, and have a huge income spike next summer. So that will propel us into next winter.

Worst Case Scenario

The first winter we did this I was scared. I predicted the best I could, but I couldn’t let go of this nagging feeling that I wasn’t in control. I wasn’t making much money and I felt like I wasn’t contributing.

I kept thinking about the worst case scenario. What if Matt was injured? What if the economy tanked and we couldn’t book work? (Funny thing is, the economy did tank and we were OK anyway!)

The best lesson I learned was to logically find solutions to my worst case scenarios. They sound so scary when you imagine them. I thought, what if we had to live in our car! Looking at it logically, that would never happen.

I would imagine that we lost Matt’s income completely. We would have our emergency fund, and I would plan to work full time at my business to increase clients. I would also look for a job. If after three months we still weren’t making it and we were burning through our emergency fund, I would put the house on the market.

I would do a short sale if needed. Even if our house was foreclosed on I would still have my beautiful family. We would go live with my parents until we figure out what to do next. We would work our butts off to figure out a way to make it work.

Why was I worried about living in our car? We had friends and family that would help us if we were at our worst. The worst wouldn’t happen, so why keep imagining it?

It also made me realize that we had so many options. If our boat was sinking we wouldn’t have to go down with the ship! We could find ways to save ourselves.

After the Leap

You know what? It gets a lot easier with time. The second winter I was less worried. Even after a hard summer last year (taking time off for maternity leave) we were fine. This winter I feel great. I’m able to contribute more, and I know that Matt is working his butt off to have an awesome winter too.

I feel like we are making progress to combat these hills and valleys. I’m not as worried about surviving anymore. I want to thrive.

What do you think?

If you want to work for yourself but haven’t made the leap, what stops you?

June Income and Expenses Report

So this month will be a little different. I won’t actually be sharing any numbers for June. As noted in my post Stolen: $1084, my laptop was stolen. It had Quickbooks and all of my data. While I do have a lot of it backed up, I didn’t have June backed up.

Instead I will go over the process I use to deal with our irregular income. It is one of the top concerns of freelancers, and it was one of my biggest fears when I quit my job.

My check used to come in every two weeks. I could plan exactly what I was going to do with it months in advance. It made me feel secure and safe. Taking the leap from my job felt like I was jumping out of a plane without a parachute!

Fast forward almost four years. Our income is very sporadic. But I have become so accustom to this lifestyle that it is no longer an issue. Even me, a perfectionist that needs to plan months in advance, can get used to it!

These are the steps I use that help me relax.

Our Emergency Fund and HSA

Our emergency fund gives me so much peace of mind. I’ve heard a lot of people say that we shouldn’t have so much in savings, we should invest it. My peace of mind is better than any return I could get!

We have 5 months worth of expenses in our emergency fund, and about 2 months worth of expenses in our Heath Savings Account (H SA). If we have no income we could live for at least 7 months.

Planning the next months

I still plan. I actually spend more time planning than I used to. This has been the key to my success. I have to plan because our income tends to be seasonal. We make more money in the summer than we do in the winter. We are working on changing this, but that’s where we are now.

Every two months I go over the next six months to a year. I have a spreadsheet that details all of the income we are expecting. Since my clients sign on for three months at a time I can predict at least the next few months. Matt’s shows are booked in advance. Usually we know about the next four or so months, but as time passes they book more shows.

It’s hard to predict the future, but I try!

First I figure out how much we have in savings right now, not including our emergency fund. Since we have two bank accounts all I do is add it up. Then I figure out the expected income for each month, and see how far the money will go. I figure out the overflow and then carry it to the next month. I am very conservative in my estimates just in case.

Here is what my spreadsheet looks like:

Savings + Month – Expenses = Overflow

July

12,055 + 9,200 – 5,100 = 16,155

August

16155 + 5975 – 5000 = 17030

September

17030 + 2600 - 5100 = 14530

October

14530 + 2050 - 5100 = 11480

November

11480 + 3700 – 5000 = 10180

December

10180 + 400 - 5000 = 5580

January

5580 + 800 – 5000 = 1380

February

1380 + 400 – 5000 = -3220

So according to this, if we didn’t add any more work, we would be able to pay for everything through February. Then to make myself feel better I add those 7 months of emergency fund if we needed it.

So technically if we only had the work we had today and nothing more we could pay for everything until next September. Now barring any disaster, I know that we’ll have at least some income this winter, and have a huge income spike next summer. So that will propel us into next winter.

Worst Case Scenario

The first winter we did this I was scared. I predicted the best I could, but I couldn’t let go of this nagging feeling that I wasn’t in control. I wasn’t making much money and I felt like I wasn’t contributing.

I kept thinking about the worst case scenario. What if Matt was injured? What if the economy tanked and we couldn’t book work? (Funny thing is, the economy did tank and we were OK anyway!)

The best lesson I learned was to logically find solutions to my worst case scenarios. They sound so scary when you imagine them. I thought, what if we had to live in our car! Looking at it logically, that would never happen.

I would imagine that we lost Matt’s income completely. We would have our emergency fund, and I would plan to work full time at my business to increase clients. I would also look for a job. If after three months we still weren’t making it and we were burning through our emergency fund, I would put the house on the market.

I would do a short sale if needed. Even if our house was foreclosed on I would still have my beautiful family. We would go live with my parents until we figure out what to do next. We would work our butts off to figure out a way to make it work.

Why was I worried about living in our car? We had friends and family that would help us if we were at our worst. The worst wouldn’t happen, so why keep imagining it?

It also made me realize that we had so many options. If our boat was sinking we wouldn’t have to go down with the ship! We could find ways to save ourselves.

Conclusion

You know what? It gets a lot easier with time. The second winter I was less worried. Even after a hard summer last year (taking time off for maternity leave) we were fine. This winter I feel great. I’m able to contribute more, and I know that Matt is working his butt off to have an awesome winter too.

I feel like we are making progress to combat these hills and valleys. I’m not as worried about surviving anymore. I want to thrive.

What do you think?

If you want to work for yourself but haven’t made the leap, what stops you?

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14 Responses to “How I Handle an Irregular Income”

  1. Mike CJ

    Really useful for those of us who have to live with an income that isn’t a monthly salary.

    If I’m honest, I still haven’t really got the hang of this, but over time it’s dawned on me that even though our income is now pretty good, we really need to have some discipline to put some away for when it isn’t. It’s been too easy after a year and half of “getting by” to start to spend what comes in.

    Thanks for this.

    • Jaime

      Thanks Mike. I know it’s all too easy to loosen your belt after a surplus comes in. When we work hard we should be able to enjoy the benefits!

      I’ve realized that when I set up a system to save, and am intentional about what I buy (especially if it’s just for fun) I have the best of both worlds. I don’t have to worry about the future, and I can enjoy the now! :)

  2. Budgeting in the Fun Stuff

    I wouldn’t mind an irregular income if I could think of anything I could actually make a living at and enjoy more than the mediocre job I have right now. Today has sucked, so I’m thinking that I need to start looking and applying sooner rather than later…

    • Jaime

      Sucky days are excellent motivation!

      You don’t need to know what you would do, you just need to make a commitment to find it. In 10 years do you want to be at a mediocre job? I’d like to challenge you to find a few good books about how to find your passion. I know when I was going through that stage I read “I Could Do Anything If I Only Knew What It Was” by Barbara Sher. When I was reading it I had no idea whatsoever what I wanted to do. Now I can’t imagine doing anything else. One of my clients gave me an amazing compliment the other day, pretty much saying coaching was what I was meant to do in life. So sweet, and so true!

      • Budgeting in the Fun Stuff

        You sound like a motivational speak, lol. Thanks for the advice. “I Could Do Anything If I Only Knew What It Was” is on my library request list as we speak. :-)

      • Nathan Hangen

        I have that same book and had the same reaction. Damn her for pushing me off the cliff :)

        In all seriousness, this is a good post, and as I leave the Army, it’s what I’m working on so that my wife can trust in my decision not to get a job. Still working on that one :)

        • Jaime

          Thanks for visiting Nathan :)
          I’m generalizing, but women tend to want as much security as humanly possible. I know I really needed at least 20 grand in the bank to feel ok about it. As time passes though she’ll feel better!

          (and if she ever wants to talk to me about finances or how to plan to make her feel better, just ask!)

  3. Helen

    Kudos to you, Jaime. Successfully managing money is a lot about math, but it’s equally about perspective and the right attitude. I think you’ve got it in spades.

    Best wishes to you and your family!

    • Jaime

      Aw thanks so much for the compliment Helen! Thank you for reading my blog. I really appreciate it. :)

  4. Danny @ Frugal Quack

    I would rather make ten times less and be happy doing something I love, than make tons of cash and hate what I do day in and day out.

    As for handling an irregular income, it’s all about balance mixed in with a dose of good ole fashioned frugality.

    Cheers,
    Danny
    The Frugal Quack

    • Jaime

      Thanks Danny. And that’s the reason why I blog. I can always try to make more money doing what I love. But I can’t try to love something that I hate. :)

      Nice blog by the way- wish you had an About me page so I could read more about you!

  5. Danny @ Frugal Quack

    Hey, Jaime:

    My site is new. Am working on all the odd bits one at a time. Feel free to visit again in a few days and I should have something up on my “About Me” page.

    Best,
    Danny