When presented to me, the thought of working on 100% commission was a terrifying concept.
No more regular paychecks. No guarantee that I’d make anything. No sense of security that accompanies jobs where you punch a time clock or are given a salary. In a matter of months, my days of enjoying my bi-weekly paycheck were over it now are the days where I can make $0 in a month or $20,000.
Being 8 months removed from the start this horrifying and exciting journey, I can say that I am glad that I understand the principles of budgeting, know how to live on less than we make, and am absolutely CHEAP.
I’ve had this conversation with a number of my friends but the truth is many people can’t handle living on an irregular income (unless you’re just killing it and swimming in dough). I’m thankful that I learned how to budget 6 years ago, because if I was like most people, working an irregular income job wouldn’t be a possibility.
The first step to creating an irregular income budget is knowing precisely how much you spend every single month. And I mean EVERY. SINGLE. BILL AND EXPENSE.
So, if you’re moving to a commission-based job or a portion of your income is irregular, then sit down and create a budget. Once you’re done, it may look something like this:
Once you’re fully aware of how much money you NEED every single month to get by, it gives you a much better picture of how much you need to be earning to make ends-meet.
While some people may have dividends from stocks, rent from investment properties, social security, or a spouse that works, it’s important that you factor in how much is likely to come in each month (without your irregular income).
Fortunately for me my wife is a sugar momma and brings home the bacon (partially kidding – to which of those points I’ll let you decide). For instance, in the above example, if your spouse brings home $3,000/month after taxes, then you now know you’re left covering the gap.
In this case, you need to bring in $1,405 every month from your irregular income, after you’ve set aside money for taxes. When factoring taxes into the equation, whether you own your own business or a 1099 worker, you could be looking at $2,000/month that’s needed (an extra $600 for taxes).
As the term irregular income suggests, it’s highly likely that you’re going to experience swings (sometimes dramatic) if you own your own business or operate under 100% commission.
After determining your budget, factoring in probable monthly income, and discovering that you now need to bring in $2,000/month to cover the rest of the bills and taxes, what do you do in a month when you make $4,000 or $15,000?
If you’ve taken these steps and are reading this article then I’m going to assume you want the proper, wise answer: you save it and keep it UNTOUCHED for those months when you make ZILCH.
Just like our family has an emergency fund, I also sport a large emergency fund for my business. The crazy part about 100% commission and most irregular income jobs is that you can make a TON of money and then can make nothing for consecutive months. Furthermore, for my particular business there are expensive marketing methods we use to generate leads, so in the months that I make more than the hypothetical $2,000, the remainder of the money has to be set aside to cover (1) bad months and (2) business expenses.
After months of handling the ups-and-downs of being on an irregular income and paying yourself the consistent $2,000/month, hopefully you’ll gain some traction and have a nice nest egg piling up in your business checking account or earning some interest in a savings account.
Personally, I have a goal of saving 6-months worth of income in my business account PLUS the cost of marketing for a few events. After reaching that goal, then it’s time to start paying yourself a little more OR spending anything above the $2,000 you bring in each month.
I prefer the first suggestion: once I reach my goal I may bump my income by 10 or 25% and leave the rest of the money from “up” months piling up in that business account. Once I get a large enough cushion then I will probably take some out and put it towards whatever financial goal we’re on at that time.
Have you ever considered taking a job with an irregular income or does it just terrify you too much? If you have an irregular income, how do you establish your budget?
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