Many people are not on a standard salary. There are those who survive on irregular sources of income, like sales persons, whose income is fully or partially paid via commission. Self-employed people also have an irregular source of income, especially those just starting their venture.
Managing irregular income is not easy but it can be done.
We sometimes hold ourselves hostage by believing that we cannot manage our money or build a financial plan because of this. Here are a few tips that may help you if you are in this sort of cycle.
Know what your fundamental expenses are. Despite the fact that you do not earn money on a monthly basis, you still have monthly expenses.
This is where the biggest challenge with this situation lies. Your rent, food, transport and utility bills may fall due on a particular day each month, but your payments come in at varied times.
In order to work this out, you need to work out the specific figure you need each month to make those payments.
Do not get excited when you are paid. The amount of money that you have in the bank does not signify the amount of money you should spend.
You may have received your commissions, or a client may have paid you.
The presence of temporary liquidity does not indicate that is the money you should spend in a short period of time.
This is not yet the time to “treat” yourself, neither is it the money you use to upgrade your phone or buy a plot of land.
There is really no point owning these things only to find that you cannot afford to eat.
If you have completed step one, you will now be conscious of how far this money can take you.
This simple calculation will sober you up. It may be able to sustain your basic expenses for a couple of months. Since you don’t earn income every month, spend it only on those basic expenses first.
Pay your basic expenses in advance. If you have received a lump sum, pay rent for two or three months. Pay school fees, utility bills and any other expense that can be paid monthly. Even if you do not earn money next month, it is of some comfort to know that you still have a roof over your head and that your children are in school.
There are some expenses that you may not be able to pay in advance, but you can be clever with them.
I have found that bulk buying of dry foods and some household items cuts down on the overall cost, removes the pressure of a huge monthly cash outlay and saves you time.
The next thing you need to do to control your spending is to move money away from your regular (current) account.
You can place it in a separate savings account and remove the money that you need on a monthly basis. Think of it as paying yourself a monthly maintenance allowance.
To help you with this, you can also start tracking your income cycle. Maybe you will find that on average, you get a payment every two to three months.
That shows you that this account should typically have money that can sustain you for at least three months. I would even suggest you push it up a month or two.
You may be one of those people whose irregular income cycle is shorter than the expense cycle. For example, you earn money every week but major expenses occur monthly.
This money can still be kept in this separate account for those major expenses at the end of the month. Based on your income cycle, you know what kind of buffer to create.
Once that buffer is in place you can then think of doing other things as you earn money. You can increase the buffer or you can spend on other things that may not be covered in your basic expenses, or you can invest.
Do not borrow. You should not be borrowing to sustain these expenses. Borrowing for lifestyle is never advisable.
Every time you borrow you create a new ongoing expense. Cut down on expenses if you have to. Repayment of any debts you have accumulated in the past should just form part of the monthly bills that you plan for, but do not take on more debt.
The biggest shift that has to happen in managing irregular income is not spending all the money that you may have access to.
It requires a bit more discipline and control over your spending. However in time, this discipline is exactly what is needed to progress in other areas in your financial life.