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?

Tags: Budgeting, Debt, Debt Free, debt freedom, finances, Wealth Building

Categories: Budgeting, Debt Freedom, Entrepreneurship, Finance, Finances, Goals

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