For people who have commission or contract jobs or whose income is unpredictable or seasonal, financial planning is essential to ensure not only that they make ends meet year-around, but also to reduce their stress around the times when cash flow is low.
Having an irregular income is more common than many think. From retail staff to contract workers or even independent psychiatrists and physicians, it is often hard to maintain a steady income through the year. Think of summer months, when people flock to vacation destinations and impact many businesses.
The good news is that the income irregularity in itself is predictable if you’re in such a business. So all you really need to do is to plan for the months or times when business is low. And it is also important to be realistic about the fact that a huge commission every once in a while, for example, could be exceptional and therefore should not warrant a huge boost in your lifestyle.
Here are a few points to keep in mind in planning for maintaining your income and cash flow.
Know your patterns
Get a clear idea of how much money you are likely to make over the year and your expenses, too. If you have been in the same job or field for a few years, it could be helpful to take a look at your past years’ income and expenses. If you’re new to the industry, get some realistic expectations by talking to your peers and contacts.
Once you have a good sense of your overall annual income. It is time to know your expenses, which are probably part in any past budget you created. In particular, take note of any big payments that might fall during likely tough times.
For example, if you’re paying school tuition or rent on a certain number of instalments, you will want to plan ahead for these upcoming payments.
Plan for savings
A casual approach to savings may not work. You will need to come up with a number for how much you will need to save every month to ensure that you can pay your bills and live comfortably when income is low. Once you have this number in mind, you can either plan to have the money transferred automatically from your account to a separate account or you do so manually.
If you income fluctuate significantly from one month to the other, it could be hard to save the same amount of money every month, however. In this case, you will need to come up with a quarterly amount, for example, and try to target this number over several months.
Don’t lean on credit
Although your cash flow problems can be solved by leaning on the use of credit cards, it is easy to get dragged into living well beyond your means, especially as you begin to push the payment of your credit card balance well down the road. That is typically the slippery slope that leads to the beginning of a debt spiral.
Having said that, you’re expecting a big payment coming up in a month or so, and you’re certain that the money spent on your card will be paid off, that is one good way to navigate the expenses required when income is low.
Schedule payments effectively
Monthly payments are best for people whose income is regular and monthly. If your work is seasonal and you want to reduce the stress of scheduling monthly payment, try to plan for different payment schedules or ask if you can pay in advance — place deposits — for some services. For example, your bank may allow you to make several car loan payments ahead of their dates. Your landlord probably won’t mind getting some money ahead of its due date.
Although this may appear to be a burden on your finances, getting some big payments out of the way while you have the money could be a great help later. A little bit of planning can go a long way in reducing your stress around managing regular expenses on an irregular income.
The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.
Managing irregular incomes
Be realistic about your income over the year
Plan for how to pay your monthly bills
Save instead of using credit, if you can
Pay ahead when you have the money
R.O.
