How to tackle irregular cash flow with proper strategy

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By: tiarajoseph11
on 17th May,2016

Learn how to make a proper strategy that can manage your irregular cash flow.

If you are one of the many individuals who are doing commission-based jobs or have their own business, it’ll be difficult for you to make a proper budget with a variable, uncertain earning resource. But, that doesn't mean you can’t create your own budget. Your income may be unpredictable, but you must create a plan so that such fluctuating cash flow doesn't make your life uncontrollable.

First, you need to figure out how much money you are getting in total. Once you have the total gross amount, calculate expenses needed each month in order to meet your basic four requirements (food, clothing, shelter, and transportation).

Creating a budget

Projecting cash flow is the first thing you need to do. You may need to find a basis for your budget, So, follow a simple way to handle your money. I would recommend you must use two separate bank accounts to start the work:

  • Open a “business” account and deposit all of your income. It will be best if your business account would be a high-return saving account.
  • Another is your personal account, the purpose of opening this account is to pay your different expenses. You won’t require a new account if you already have one.

Every month receive your income in your business account. Your cash will be accumulated in this way. Because it’s in a high-yield account, it will generate interest.

From this money, pay yourself the money as needed by considering yourself an employee. Your monthly salary (which you’ll pay yourself from the “business account”) is your only source of the monthly budget. So, you need to consider your monthly fixed expenses as the minimum monthly limit of your salary. On a fixed date every month, give yourself a signed paycheck. Leave the rest of your income in your business account.

At the end of each year, you’ll see:

  • First, you need to reset your paycheck amount. As per the previous year, your income might increase or decrease.
  • You may use the “extra” saved money accumulating in your business account to pay off taxes. For now, it’s very important that you must make an account for them, especially if nobody else is taking care of them from your paycheck.
  • Finally, if you have anything left after paying taxes, you pull this money out of the business account as personal income. It is a bonus. You can use it for reducing debt, long-term savings, etc.

The first year will be hard. You can’t depend on your budget (averages or on the lowest income) from the last year. So, you’ll have to try new methods for using your money properly. Always remember, it is easy to handle a budget surplus but very hard to deal with a budget deficit!

Tips and tricks

There are several things which can be handled with an irregular income with ease. The following tips and tricks you can use:

a. Establish a foundation of thrift - The best thing that would help you to manage the irregular income was adopting a lifestyle of thrift. You need to cut off your spending. You need to decrease all the recurring monthly expenses. Choose alternatives to the things you use to spend money on.

b. Prioritize expenses - Most of the budgeting guides suggest that you must create a list of expenses according to your priority. Financial expert Dave Ramsey advised that we should be listing all of our expenses as per the importance. As soon as you receive your paycheck, start paying off the expenses starting from the top of the list. This is the best way for those who are having a problem to meet all the expenses.

c. Build a savings for an emergency - Put a good amount to an emergency fund.If anytime your income drops, then this fund may help you to get out of any trouble. When you have an irregular income, the bigger your emergency savings, the better.

d. Tap your business account - The money accumulated in your business account may also help you if needed. Don’t do it until you have no other option. Remember, that money is generated to meet your tax burden, and for your monthly salary.

e. Resist overspending during the good days - One of the biggest problems of having an irregular income is to the urge of overspending in those days or months, where you have saved more than usual. On a good month, you might want to spend a little bit more on your entertainment. But on the next lean month, there’s no extra money left to help you. So, keep your eyes open.

Don’t miss out: How can you stay away from bankruptcy during this lifestyle inflation?

f. If possible, live off just one income - If you have an irregular income but your partner is also making a good amount every month, try to live on solely on one income. Use your partner’s money to pay off the most needed costs, and use your money for savings and extras. This isn’t an option for single people. But you can try it as a great way to budget.

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