How to plan finances with irregular income

Irregular income can wreak havoc to your dreams and ambitions when it comes to planning finances.

Discipline is essential when you invest. A SIP requires you put in a certain amount every month. Same goes with RD. For lump sum investment in mutual funds it’s essential you save an amount regularly to arrive at the lump sum. All the options require discipline which is just another way of saying that you ought to live below your means until you build out your corpus.

Again, irregularity in income can wreak those efforts. If one month you’re earning 20,000 and your expenses amount to 15000, you can take 5000 and invest.

But if in the second month, instead of 20000 you manage to make only 14000 (say client payment delays, low clicks on affiliate site or something else) you don’t have the minimum required for investment but you need to borrow 1000 from somewhere to meet expenses.

Irregularity is a big curse for planning out long-term investment.

How do you get out of this scramble?

Plan ahead with an emergency fund

Before quitting a job people tend to generally save up to 6 months to one year of their income to carry them through the next few lean months. Since you’re not quitting jobs but rather have irregular income it’s advisable to save up 6 months of your income.

Create a separate savings account

If you keep entire funds in one account you will always itch to remove money from that account should any expense arise. To avoid the problem, it’s best to keep your money for savings in another account and away from your eyes. You don’t see it, you may not want it.

Contribute to the savings account

How soon you reach the contingency fund and exceed it depends on how regularly and how much you’re able to contribute. Whatever may be the reasons before you don’t skimp on the savings account contributions. Make it every month.

Any excess payments or bonuses

Bonuses and other windfalls should find their way to the savings account rather than spending it on things that may or may not benefit you. You are not here to splurge.

Cut expenses as much as possible

When people tell me they have no money to invest or save I ask them where their money goes every month. For often than not they spend it on rent. An apartment or house in a nice locality is good but not essential for survival. For many years I shared houses with others to get through rent and spend as little as possible. Do you really need that 20,000 a month apartment? Can you walk instead of taking the auto or bus or cab? Can you cut down on eating out? Ask yourself these and see how money comes in pouring.