6 Essential Money Moves for People with Variable Incomes

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Hands counting Dollar cash
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One of the thrills of being an entrepreneur -- one that also goes along with jobs that pay commissions and bonuses -- is the feeling that the sky is the limit on your potential earnings. But sometimes, it can feel like the income sky is falling.

Although the flexibility and lifestyle balance can be great day-to-day benefits, it's easy to get disoriented by the highs, lows and general unpredictability of what one's income will look like month-to-month.

Which is why, if your income is volatile for any reason -- whether you're an entrepreneur, in sales or just don't have a steady paycheck -- you, more than the average worker, need to streamline your finances and set yourself up for success. Here's how:

1. Know your cash flow. Having a variable income makes it even more important to have a detailed and clear understanding of what's coming in, where it's coming from, what's going out, where it's going to, and when it all is happening. Use an online tracker such as Mint.com and ensure you're tracking debit, credit and cash expenses.

2. Categorize. Maintaining a detailed budget will help you to categorize and prioritize for those lean months when you may not have room for the "wants" in your life. Ultimately, you want to ensure you can cover the expenses that are imperative, and with proper planning you should be able to. Categorize your spending to identify select areas that you may be able to cut back on if needed. Typically items such as dining out, entertainment, travel, personal shopping, and other day-to-day "wants" can be trimmed if necessary.

3. Be flexible. The roller coaster ride that is your income could translate into a variable lifestyle as well, with your having funds to splurge on extras one month and then needing to cut back to the bare necessities the next. Be flexible and prioritize your spending to ensure you're paying yourself first before jumping into allocating extras towards fun or discretionary expenses. Ensure your budget Includes savings for personal goals, retirement and emergency cushions and then work in any other extras.

4. Add an extra layer of protection. Everyone needs an emergency fund of three to six months of expenses set aside. But those on a varying income should consider starting with a household expense fund to prevent the drastic swings in lifestyle that can come with the income. During some more lucrative months, set aside three to six months of household expenses to supplement you during the slow months. This will allow you to turn your savings into a paycheck of sorts to funnel in funds needed.

5. Plan for your future. If you're employed, maximize use of your employer benefit programs and retirement plans. Ensure you're not leaving any money on the table and at a minimum contribute enough to take advantage of any company provided matches. If you're self-employed, look into the many retirement plan options for entrepreneurs such as the SEP Individual Retirement Account, a Solo 401(k) or a Simple IRA.

6. Automate. Although your income can vary, calculate a conservative average and use this number to set a monthly savings goal. Schedule bi-weekly or monthly dates to review your spending and income and track where there's room for improvement.

Mary Beth Storjohann is a certified financial planner for Gen Y. She created Nine Steps to Workable Wealth to help you make smart choices with your money.


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