get out of debt the challenge of irregular income

October 10th, 2008

Get Out Of Debt: The Challenge of Irregular Income

Our family as a unit has never truly had completely irregular income.  Meaning, although I personally have had irregular income for the past 8 years, my spouse has always had a specific income at regular intervals.  So we basically have a regular income with an aspect of irregularity to it.  The part that makes me experienced in dealing with irregular income is that we haven’t yet, as a family, gotten to the point that all of our expenses are met by my spouse’s income.  That’s the goal – well the goal is that they are all met and more by my spouse’s income – but we have a ways to go for that to happen.  My income is pretty diversified now, and we only rely on a small amount of it per month to meet our budget, so it acts more regular than irregular, but that wasn’t always the case.

Even if you don’t think you can create a budget around an irregular income – you already are.   You are spending money each month, which means it has to come from somewhere.  The goal is to not be like the government and spend money you created out of thin air (sorry, couldn’t resist) but money that you’ve earned in the past.  Paycheck to paycheck budgeting isn’t ideal for anyone, but it is basically impossible for those with irregular income.  We have to find another way.

A while back I wrote about how to deal with budgeting around an irregular income – the general take home point is that with irregular income, you need to figure out a way to create an artificially regular one.  This can be through a savings account you pay yourself out of each month, or specifically earmarking money in your checking account for specific months.  For specific ideas about how to create that budget, you can look to that post.  The key point I want to drive home today is that to successfully survive, and flourish, on irregular income, you need to expand your thinking about income and what it does.  But how?  How to escape the idea of spending money when you get money – the idea that so many people have been brainwashed into believing is the only way to exist?

If you still have income coming in,  you can start right now.  Move it to that savings account.  Only take it out as you need it.  Resist the temptation to spend more when you have more.  Live as close to the bone as possible and spend as little as possible.  Hoard.  Hoard like you have never hoarded before.  Eventually you’ll be ahead and not dependent to meet current bills with income you haven’t earned yet.

If you’re not sure when the next money is coming in, in my opinion I’d start diversifying that income.  Find something you can do part time to bring in something.  Having diverse sources of income takes the sting away from its irregularity.  An additional source of income could be just long enough to get back on track, but long-term diversification is still a good idea.

Whatever you do, the key is to think outside the box.  Break free from the traditional thought of spending money as it comes in.  Don’t budget your expenses from your projected income.  Budget them from your past income.  It won’t happen overnight – and you may go more into the hole before you start the upward climb – but keep your eyes focused on the end result.  Surviving and thriving in both lean times and abundant ones.

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8 Responses to “Get Out Of Debt: The Challenge of Irregular Income”

  1. I have a question. We have been living on budgets for over a year now. We spend much less than we make, and have paid off the cars and now close to finishing off the second mortgage. We have pretty much followed Dave Ramsey’s Baby Steps. So we are in pretty good shape and on the right track. So now the question.

    We use a zero based budget, so I put our incomes at the top and then give every dollar a name, etc. I really like your statement “Don’t budget your expenses from your projected income. Budget them from your past income.” But how do you exactly set up the budget? What do you put at the top, just a set amount then, $X,XXX every month and if there is a surplus from that month’s income it just builds up in the account?

    I’m really interested in how you might set this up. Thanks and continue the great posts!

  2. It is actually easier to do a zero-based budget with past income vs current income. Say you made $4000 in February. In March, you put $4000 at the top of your budget sheet, and budget every dollar based on the money you already have sitting in your account waiting to be used. As money comes in in March, you keep track of it and save it, and April’s budget is determined by what came in in March.

    Hope that helps! Zero-based budgeting isn’t quite as possible with irregular income which is what this post was about, which is why I didn’t talk about it, but for traditional incomes it can be done on a non-paycheck to paycheck basis very easily.

    (Still working on getting there :) )

  3. One thing that can be done on both irregular and regular incomes is to have ALL the income go directly, by direct deposit or walk-in, into the savings or money market account. Then add up the bills and move only that $$ in the checking account.

    Whatever is excess each month stays in the Money market account and you are not tempted to spend it, plus it earns interest. This was a big help to me when I was trying to pay off debt and save up at the same time.

  4. We own our own business and have very irregular income. We make most of our money during the summer & fall and not much the rest of the year. What I do when we get a check is the following: set aside percentage for taxes, set aside percentage for equipement upgrades, put the rest into savings. Each month I draw a “paycheck” from my savings. That way I always make the same amount for my budgeting. Any extra in the savings stays there and after it builds up it gets invested or moved to other savings accounts. This is the easiest way to do it, I’m never tempted to spend that money because I already have a salary. We also base our salary very low so we know we’ll definitely have more.

    Works well for us. We’ve never been hit hard during a dry spell.

  5. Whenever I get an additional snowflake, I divide it up. I take 75% of it to pay off debt and the other 25% goes to savings. But the savings itself is split– half goes to my EF and half to my retirement. I just feel more comfortable having SOMETHING – anything, in savings.

  6. Thank you for your words of wisdom…I am seeing more and more how to live on my irregular income…it is so different from the many years when I had a paycheck every 2 weeks and I knew exactly what it would be. I will be doing some hard thinking about how to create an artificial income for the months when my real income is slim.

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