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Smooth Our Irregular Income

Posted By Jim On 11/13/2007 @ 1:30 pm In Personal Finance | 5 Comments

Whether you’re freelance, are paid every two weeks, or simply have irregular commission-type income, it’s often difficult to budget when you aren’t sure how many dollars are coming in each month. This post was inspired by a friend of mine who was discussing coupled finances [3]. Her husband was paid every two weeks, she was paid twice a month, once on the 15th and again on the 30th/31st.

This meant that in each month her income was stable but his wasn’t, on certain months he would have three paydays and she would have two. The disparity between the two wasn’t the issue but budgeting for the difference is because your total household take home pay for that month will vary. This made it a similar problem that freelancers face with irregular entrepreneurial income, for lack of a better term.

Her solution? Direct deposit both of their paychecks into an ING Direct [4] (you can insert any high yield savings account [5] here) and then have an automatic transfer of funds to their main banking account. In essence, they are “paying” themselves and that payment is regular and equal. This offers two benefits:

  • Smooths out that irregular income by taking “converting” a two-week pay cycle into a twice a month pay cycle (15th, 30th).
  • Automatic savings, by leaving what you won’t need in an ING Direct, it’s much easier to save because you don’t have to make a conscious decision to save; it’s automatic.

This translates to irregular income folks because you establish a reasonable “paycheck” and keep the rest squirreled away in a high yield savings account.

What’s the alternative to this? The alternative is to just have it deposited into your account and for you to keep yourself on a strict budget, keeping in mind that your income is irregular. With my friends, it was irregular but dependable so the irregularity wasn’t a big deal. With entrepreneurs, it’s irregular and not as rock solid dependable so this system may work out better because it forces you to actively be leaner with your budget so you aren’t caught in a difficult spot if the income slows down.

Anyone have to deal with this issue and have another option? Please do share!


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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/smooth-our-irregular-income.html

[3] coupled finances: http://www.bargaineering.com/articles/tag/coupled-finances

[4] ING Direct: http://www.bargaineering.com/articles/r/ingdirect.php?tag=irregularIncome

[5] high yield savings account: http://www.bargaineering.com/articles/top-5-online-banks-savings-or-checking-accounts.html

Thank you for reading!