Irregular income can make planning difficult, but it is not impossible. The word “budget” can be intimidating but the concept is vital for those who work on commission. It is important to plan carefully so you are prepared in the event of an income crisis or unforeseen expense. Here are some guidelines for assessing expenses and establishing a workable budget.
First, list monthly expenses including but not limited to rent/mortgage, health insurance, utilities, groceries, entertainment…everything. In assembling this information it is important not to guess at the numbers. Look at past receipts to ensure your estimated expenses are accurate.
Next, divide your expenses into “necessities” and “luxuries.” Under the heading of necessities, you need to know what you need to get by on a monthly basis. The minimum consists of solely the necessities, groceries, utilities, rent/mortgage, car payments, insurance. The Necessity budget is what you require to function when you are between deals.
Under the heading of necessities is the topic of “Savings.” Savings is planning for the future and being prepared for the slow times. This is where you plug in the numbers from your assessment of “necessities,” and then set aside money to pay for the necessities when cash flow is low.
There are several ways to ensure you adhere to your savings goals on a regular basis. Adopt the practice of paying yourself first. Arrange to have a fixed amount deducted from each deposit so it is secured before you ever see the numbers in your checking account. It is wise to deposit that money in a separate account that does not have an easy method to withdraw or transfer funds. Success in avoiding the temptation to dip into savings depends on how well the money is maintained out of reach and out of sight.
Next, identify and prioritize your luxury items. Only after the funds have been set aside to provide for the necessities can you “afford” to consider luxury items. For the purpose of formulating a personal or family budget, luxury items are not jewels and sports cars. Luxury items include entertainment, clothes, even paying down debts! Everything that is not included under the heading of “necessities;” that is, everything that you can survive without.
Because no one wants to get by with only the necessities, the next step in sculpting a budget consists of identifying the additional expenditures and then prioritizing them to establish their value to yourself and/or your household. The key to success in income management is knowing precisely what you need, and the only way to do that is to WRITE IT DOWN! Nothing is more important than keeping accurate and updated records of income and expenses. Budget is not a bad thing, not a bad word. A written budget provides a clear picture of when and how to spend your money. It enables you to make financial decisions proactively, telling your money where to go before it shows you where it went!
After you know your expenses, your entire budget is based on those numbers. If you know it costs you $5000/mo to live (basic necessities) and you earn $7500 in commission this month…$2500 should be earmarked to achieve a specific budgetary goal: (1) Deposit it in an account where it will be available in the event of a slow income/high expense month. (2) Put it into an account for next month’s expenses. If you know it costs you $5K/mo, you now only NEED to come up with another $2500 to meet next month’s expenses. (3) Divide it among the first two options and allow yourself a reasonable amount for those items you have designated as “luxuries.”
The plain and simple truth is, budgeting is not difficult. In fact, you’re already doing it, although possibly not to your advantage. Most people throw money at the loudest expense – this is a form of budgeting…the form where you’re being controlled by someone else’s demands. You need to be in control by telling your money where to go before it shows you where it went…especially when you earn commission! The final fact to remember is this: Those paid on commission earn more than hourly workers across the board. Wage earners at every level succeed when they adhere to a budget; having significantly more income to budget can’t possibly be a bad thing. Salary is still hourly – FACT.