Problems with saving and spending due to an irregular income

[Danita]

Hello,

I am 28 and I run my own small company. I was always disciplined if it comes to money, especially when I was a student and had very little.

Recently, I realized that I spent a lot of. I have problems with estimating my real monthly income, because different clients pays me on different days. I am not able to tell how much I will earn next month. Sometimes, I don't realize that I have already spent the money that I was expecting to receive (when a client pays me earlier).

However, I have no debts (no loans, no credit cards, no mortgage).

I used to live really comfortable lifestyle, but I wouldn't say that it is exaggerated. I like eating out and pampering myself with quality wines, but I don't frequent expensive restaurants. I like shoping, but I rarely buy something that I don't need (I buy quality products that last years, I think twice before making a purchase - most of the time).

Still, after looking at my bank account I am often schocked and wonder where my money goes. I would like to change that.

I have around 10.000 euros in my saving account and around 3000 in my current account. I would like to learn how to save in a more efficient way, because I feel that I waste my money (and I would like to know where).

[Nutria]

Recently, I realized that I spent a lot of. I have problems with estimating my real monthly income, because different clients pays me on different days. I am not able to tell how much I will earn next month. Sometimes, I don't realize that I have already spent the money that I was expecting to receive (when a client pays me earlier). ... Still, after looking at my bank account I am often schocked and wonder where my money goes. I would like to change that.

I have around 10.000 euros in my saving account and around 3000 in my current account. I would like to learn how to save in a more efficient way, because I feel that I waste my money (and I would like to know where).

These are two different problems. Solve the first and then you can solve the second.

I would suggest that you go through the previous 18-24 months and calculate the average business income per month. Then, during months where you get more than the average, put the excess in a separate account; during months when you get less than expected, take some out of the "excess" account to make up the difference.

From there you can create a personal budget where you decide how much to pamper yourself and how much to put away for a "rainy day" (what is typically called an Emergency Fund), and for other items that you want in your future.

Since you run a small business, I recommend a rather large EF; build it up to 12 months of personal expenses.

[Fishindude77]

Self employed for (32) years.
What worked for our company is that we paid ourselves a real conservative (low for market) weekly salary that we knew we would have no trouble making payroll with every week. I maintained my day to day living expenses based on that salary, so lived very conservatively.

Any income we took from the company above and beyond that salary was after all bills were paid and we had plenty of money in the company to keep the show going. Our philosophy was roughly; 1/3 of the profits stay in company, 1/3 to employees, 1/3 split between owners.

Over time, we accumulated enough $$ in the business that we could run the place without ever borrowing and were able to pay ourselves a little better salaries, but the significant money came in year end bonuses, etc. We still kept salary conservative and took the extra $$ only when all accounts were settled and employees were well compensated.

Too many small business owners don't run their business like a business. They use it as their personal check book. Get a good accountant and accounting system so you know where the business stands financially all of the time, and don't rob the business money for personal use.

[snafu]

Danita, welcome to SA.

I too am self employed and similarly to Fishingdude, pay myself a modest salary that I feel confident the business can sustain. A business account separates income and expenses from my personal income and expenses. Most of my business expenses are split costs so I allocate, record and also file Business/Corporate tax. The business pays me 'rent' based on square footage used in our home which includes a percentage of heat, electric, phone, cable, computer costs and office supplies.

I send invoices with product so it's easy to accurately project income for 30 - 60 days. Anticipated income for projects underway are tracked for their deadline/completion date so I know what to expect 60 - 90 days out. I follow banking on-line, use the Mobile/photo deposit system and the bank's system does the verification electronically. I merely print a quarterly statement.

Since I am a sole operator I can give myself a bonus if I wish. Profit is mostly allocated to an Index MF. I plan to give myself a retirement product but setting up a self employed plan sounded more complicated than I have been willing to do.

[GoodSteward]

Danita, welcome to SA.

I too am self employed and similarly to Fishingdude, pay myself a modest salary that I feel confident the business can sustain.

Self employed for (32) years.
What worked for our company is that we paid ourselves a real conservative (low for market) weekly salary that we knew we would have no trouble making payroll with every week. I maintained my day to day living expenses based on that salary, so lived very conservatively.

Too many small business owners don't run their business like a business. They use it as their personal check book. Get a good accountant and accounting system so you know where the business stands financially all of the time, and don't rob the business money for personal use.

I like their way of thinking, and I operate the same with the self-employed job I have. I have a regular job as well, but what I had to do is figure out the Avg income, and then make a salary for a little less than that paying myself bi-weekly. I also always maintain a months income in that account. Over time, it will build up and I will give myself a "bonus" always leaving enough for at least a month. For a business, I would think aiming a little a higher would be better, like say having three months saved up.

From that point, you have to take control of your money. You can only do that with a budget and expense tracking. It isn't fun to start doing this, but the stress it relieves(you don't realize the stress a "Free-spending" lifestyle creates until you are in control) and the amazing results it gives far outweigh the work.

[puck36]

http://www.daveramsey.com/blog/how-to-budget-an-irregular-income

http://www.daveramsey.com/blog/quick-guide-to-budgeting-irregular-income

[Nutria]

http://www.daveramsey.com/blog/how-t...regular-income

http://www.daveramsey.com/blog/quick...regular-income

Why must FPU be fun?

[GoodSteward]

Why must FPU be fun?

People don't want to buy sad.

Well, some do...and they have a whole TV channel dedicated to sadness, sad situations, sad stories, etc called Lifetime. lol

Most people don't buy sad.

[Nutria]

People don't want to buy sad.

That's why the Coca-Cola Co hired an ad agency to write, "I'd like to buy the world a home / And furnish it with love / Grow apple trees and honey bees / And snow white turtle doves" to sell brown sugar water. No mention of the f-word in that commercial.

Well, some do...and they have a whole TV channel dedicated to sadness, sad situations, sad stories, etc called Lifetime. lol

Most people don't buy sad.

But you just proved that most (by a small margin) people do want to buy sad...

[Danita]

Thank you for the advice that's really encouraging. I will take a look at my income and spending from the last months, but at first I have to prepare myself mentally to do that.

I will use the strategy of paying myself a salary and separating the rest on a different account.

I think that my main problem is my mindset as I don't like to scrimp and I rationalize my free-spending, like "Why shouldn't I buy myself something nice, if I work hard to have a comfortable life and don't have to struggle to make ends meet?". With that attitude anything seems to be indispensable.

[Nutria]

I think that my main problem is my mindset as I don't like to scrimp and I rationalize my free-spending, like "Why shouldn't I buy myself something nice, if I work hard to have a comfortable life and don't have to struggle to make ends meet?". With that attitude anything seems to be indispensable.

Do you want to be the Ant, or the Grasshopper?

[Nutria]

Thank you for the advice that's really encouraging. I will take a look at my income and spending from the last months, but at first I have to prepare myself mentally to do that.

I will use the strategy of paying myself a salary and separating the rest on a different account.

I think that my main problem is my mindset as I don't like to scrimp and I rationalize my free-spending, like "Why shouldn't I buy myself something nice, if I work hard to have a comfortable life and don't have to struggle to make ends meet?". With that attitude anything seems to be indispensable.

A film shown to American school children 70 years ago has relevance here: "Your Thrift Habits" https://www.youtube.com/watch?v=v-NcICFSOqE

[GoodSteward]

I think that my main problem is my mindset as I don't like to scrimp and I rationalize my free-spending, like "Why shouldn't I buy myself something nice, if I work hard to have a comfortable life and don't have to struggle to make ends meet?". With that attitude anything seems to be indispensable.

I believe that shift happens when you realize the impact of your choices. From what you have mentioned here, I think you need a good dose of "Woah, I've spent how much!" which will happen when you expense track.

I love the ant and grasshopper reply by Nutria. lol You can only live debt free for so long if you don't prepare. Eventually, you will get another vehicle, for instance. In the words of Dave Ramsey "Everybody knows who's been skinny dipping when the tide goes out." We can only get away with frivolous and dangerous lifestyles for so long.

If you follow the typical advice of paying yourself first that would also curb a lot of this. If you remove your funds to spend, they won't be spent. Just my .02 cents.

Hang around the site, read posts, and I believe you'll start to pick up on how people that actually have a lot of money think, which will help you think different. (not "make" a lot of money but have a lot of money through saving and building up)

[snafu]

Danita, thanks for the update and clarification. Going in a totally different direction, I wonder if you heard of 'The Life-Changing Magic of Tidying Up?' [There is a ton of info/discussion on You Tube] There is a Declutter thread here

I followed her process some time ago, wanting to enhance time management skills, but uncovered patterns that needed to be changed to avoid future problems. Experience had taught...I can always make more money but there is no way to recapture time.

[Mayla]

These are two different problems. Solve the first and then you can solve the second.

I would suggest that you go through the previous 18-24 months and calculate the average business income per month. Then, during months where you get more than the average, put the excess in a separate account; during months when you get less than expected, take some out of the "excess" account to make up the difference.

From there you can create a personal budget where you decide how much to pamper yourself and how much to put away for a "rainy day" (what is typically called an Emergency Fund), and for other items that you want in your future.

Since you run a small business, I recommend a rather large EF; build it up to 12 months of personal expenses.[/QUOTE]

Good description, I fully agree with you!