How To: Handle Irregular Income

I've mentioned this a couple of times before - and considering the age of this site, that's really saying something. What to do with irregular income? Even if you are not living on a monthly budget - and you should be - you can still do this. Overtime pay, a bonus check, garage sale profits, inheritance money, tax refund, birthday money... This money is coming in, but what will you do with it?

As you may have found already, if you don't tell your money what to do, you'll always wonder what happened to it. You'll have blown through this extra income so fast, your head will spin and just when you regain your balance, your spouse will say, "Why don't we take that tax refund and do X?". I don't know what 'X' will be, but it won't be a fun conversation when the two of you realize that money is long gone.

Much like a budget, an irregular income spending plan (IISP) is a shared set of goals. If we had extra money, what would we do first? What would we do second? If we still had money left over, what would we do next? A simple spreadsheet will do nicely. What you are making is a prioritized list of expenditures with the cost and running total. I might look like this:

It need not be any more complicated than that, but you can add as much detail as you need. Four important things to note:

  1. You should have some needs and some wants. Enjoy your money, but be sure your priorities are in order.
  2. You and your spouse need to agree on the priorities. You may think that buying a table saw should be job 1, but since you haven't taken your wife out to a nice meal in 6 months, she may think otherwise.
  3. You should always have more items in the hopper than irregular income can cover. Who has ~$13k in irregular income?!? You might! You might not. If you do, then you should have a plan for it. If not, then you can move the remaining items up and work on new ones to fill the hopper. Worst case: a rich relative dies and leaves you more money than you could have imagined and it totally blows away your IISP. This is a good problem to have.
  4. You'll notice my use of the pronoun "we", and mention discussions with your spouse. This is more important for married couples than you could ever imagine, and probably warrants its own article. If you are not on the same page as your spouse, what a peace offering this could be. Sit down with your husband or wife and talk to them about doing this. Talk about how important this is to you and about how you want to do it together - and mean it.
With th above example, lets say your annual bonus check is $2000. With that, you can quickly see that you'll be able to add to the Emergency Fund, Take the wife out to a nice dinner, and paint the house. The left over $250 can go into savings with the 'Irregular Income' earmark. Not bad, but that laptop still seems forever away, and the table saw, well don't even mention dad's table saw. Dad will get his saw, he just needs to be patient and maybe make his case to move it up the list. Or maybe Dad should get out there and earn some extra income to make this happen.
Anyone else have experience doing this? We've done it for 2 or 3 years now and find it works quite well.

**UPDATE** Welcome CoPF readers! If you are new to Not the Jet Set, the please check out our latest posts as well as a bit about this site. Thanks for reading!


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