TRE Newsletter #004: Manage Your Inconsistent Income…Without Budgeting

Budgeting without burnout or tracking every transaction. - Gasp! what would Dave Ramsey think?

When Income is Irregular?

Your income can be irregular during many seasons of life.

When you start a business.

You’re on a commission pay scale.

Work as a freelancer or consultant.

Are a real estate agent (…you know who you are).

Does the in-flow fluctuation have to bring misery to your finances?

nar*…nar* it doesn’t.

How is this possible??

A similar approach to the previous issue of TRE… that’s how.

*saw a reel about how Australians talk…it’s quite funny.

20-60-20

The LIving Margin Method.
The simple outline is this.

Your monthly income is split between these overhead categories.
Ideally, you can auto-allocate your paychecks to the respective bank accounts.

• 20% - Financial goals (giving and saving)

• 60% - Fixed cost (bills, utilities, subscriptions, loans…)

• 20% - Flexible Expenses (eating out, inconsistent needs for the house, anything that changes from month to month*)

Are these hard percentages? No.

This is a great place to start.

Income and bills will cause the percentages to change.

Implementation

You must know your fixed cost.

Why key in on fixed costs??

Because that money will come out of your account…

until you change it.

…

And you can change it.

If you take a look and see that you’re spending $200 on subscriptions that you hardly use…cut that.

Woah! $300 for the AC bill?? Let’s wear some shorts and save some dollars.

(and maybe sweat a little)

It’s not always easy…but you can probably shave dollars off your fixed costs.

Big deal…How do I do this with an irregular income?

Well…

There are a couple of approaches.

Approach #1 

Literally, split every check into the proper percentages.

20% to Financial Goals

60% to Fixed Costs

20% to Flex

This would be the recommended approach IF…

You know that 60% of your minimum salary/income will always cover your fixed costs.

example: A low month for you is 5K and your fixed costs are $2500. Then you’re at 50% fixed cost.
Great I’ll just allocate those percentages and be thankful for the surplus when it comes!

BUT…if a low month is 5K and your fixed costs are closer to 4K a month…then you’ll have some issues.

I won’t work to allocate 60% to your of your pay to the fixed account.

Unless you can somehow make money off of overdraft fees.
(What a business that would be!)

Approach #2

Funnel your money into the fixed account until the minimum fixed cost is met.

Then allocate money to your financial goals and flexible spending account.

After a couple of months of doing that.
You’ll probably think.

1. How do I lower my fixed cost?

2. How do I make more money?

3. Something else that I didn't write about.

For any other questions please reach out or read my previous issue.
https://michaeldkamm.beehiiv.com/p/manage-your-money-without-budgeting 

It’s a good newsletter too. Tell your friends about it. ;)

Summary

1. Know your fixed cost.

2. Allocate your income accordingly.

   1. If you can simply allocate 20-60-20 percentages into the proper accounts. Do it.

   2. IF NOT…Fill in your fixed account first and then the other two accounts

3. Spend from each account as is proper.

Mental Margin

Our journey with budgeting.

Tracking each transaction every month weighed us down.

It became like a large anvil covered in double-sided tape…that was duct taped to my foot.

I also had banana peels for shoes.
VERY inconvenient. Hard to walk N.G.

The 20-60-20 Method has brought margin and peace to our home.

And it brought clarity in times of financial drought #BeginnerEntrepreneur.

I hope this helps.

Please reach out with any questions you have!

Closing

I hope these words were challenging and encouraging.

I’m still dialing in the newsletter’s format.

So it will change and topics will vary.

Please respond to this email if you have any ideas or topics you want me to cover. Or if you have any follow-up questions about this issue!

Thanks!

Michael D. Kamm
The Reformed Entrepreneur

P.S.

The best budget is the one you use.

There is plenty of wiggle room with The Living Margin Method.