I know how hard this sh*t can be, when income is uncertain
Hustling just to make a way, and I know you hoping… ~August Alsina
Whether you’re a car salesman, waitress, or street pharmacist, you know all too well the struggle of having a great week, month, or even season… and all of a sudden your sales slow down, or your hours get cut, and your whole world is upside down. I see it all the time. You know you can live it up when you average out your income over a period of time; you and your family deserve it, but you suffer when business slows down because there’s seemingly no way to prepare with income that’s goes up and down. Unfortunately, the industries that offer the most earning potential (and excitement) are also the most volatile (meaning it’s liable to change rapidly and unpredictably, especially for the worse). Fortunately, having security doesn’t necessarily have to mean ball and chaining yourself to a desk from 9 to 5 for the salary and benefits. Nowadays, there’s no security in that either. That whole “security theory” was created in a time when you would work for a company for a few decades, get a guaranteed pension for life, and your kids were even promised a job. Yeah, ok!
If you do a Google search on how to withstand temporary income shortages, every source will tell you to save up 3 months up to a year’s worth of living expenses in a savings account. Sounds good, but what does anyone else know about how long your droughts are and the standard of living you want to maintain during that time? While a safety net is crucial, an emergency fund is for emergencies (ie. job loss, your car insurance deductible) and puts you on a bare bones budget… and you’re just trying to ration out your income out throughout the year. Sorry, but these hair and nails are staying fresh and I’m going to brunch. My emergency fund is saved and applied differently than my “tide-over” cushion. Here’s my advice on how to enjoy the fruits of the sunny days and still weather the dry spells…
Determine your expenses (yea, really get a pen and paper):
|Carolyn’s Monthly Expenses||Amount|
|Loans/ Credit Cards||$170|
|Variable Expenses (Take your weekly costs, multiply by 52, then divide by 12)|
Take the total amount you made last year and divide it by 12. Then determine what your income was on your worst month. If you get a base salary + commission, use the base salary amount as your “worst month” income:
Carolyn’s income last year after taxes: $47,000/12= $3,900 monthly income
Her worst month for income last year was $1,600
Pay yourself a salary equal to your “total monthly expenses”. Use the excess from your better months (or income tax refund, bonus, etc.) to save the difference between your “worst month” income times the number of slow months you had last year:
Anything Carolyn makes over $2,470 is gravy. She can pay her bills and anything over that is excess.
Carolyn’s slow months at the nightclub are January, May, September. She’s likely to be short up to $870 for 3 months of the year ($2,470-$1,600). She should take the first $2,610 of “gravy” she makes in the year ($870 * 3 months) and keep that amount in her bill paying account for the year as cushion.
Live it up with the rest!
$3,900 monthly income – $2,470 monthly expenses = $1,430+ a month “gravy” to spend on whatever she wants after she saves her first $2,610.
Grind and pray, beauties and beasts,