Stabilizing your finances, step by step
Even if your income is inconsistent, you can achieve stability in your financial life by following these steps toward creating a solid financial plan.
Estimate your yearly income
Determine, as accurately as possible, what your income will be for the next 12 months. Don't forget to take into account any seasonal fluctuations (for example, if you're in sales or you receive tips or commissions). Be conservative; it's better to underestimate than overestimate.
Estimate your monthly income
Estimate how much you can pay yourself every month -- and again, take seasonal fluctuations into account and be conservative. Pay yourself only as much as you actually need each month.
Create a budget
Using your monthly income figures, create a monthly budget that you can live on and remember to include all your expenses. Adhere exactly to your figures -- and if there are months when you might be able to make more, resist the urge to add that extra income because it might not happen.
Set up separate accounts
Set up two separate accounts -- one marked "business" (for all your earnings), and one marked "personal" (for the money you'll pay yourself each month). Pay yourself only the amount you actually need each month -- and if there are extra funds, keep them in your business account.
Monitor and update your budget
Review your budget and cash flow each month and update everything every year, according to changes in your income and lifestyle. If there's extra money, make plans for investing/saving it rather than spending it.
Three important tips
- Pay Your Taxes: Always pay your taxes on time. If you're in a financial crisis, you can file an extension or arrange with the IRS to make monthly payments.
- Create an emergency fund and build on it: Nearly 31 percent of Americans don't even have $500 stashed away for emergencies. You should have at least two week's pay saved, but your goal should be three to six month's salary in your emergency fund.
- Avoid lifestyle inflation: Even if you're saving or making more money, resist the temptation to start spending more. The point is to accumulate savings now so you won't have to worry later. The time may come when you won't be making as much or when you'll have heavier expenses -- and you should always save toward retirement, no matter how far in the future it might be.
Financial planning through a credit union
When it comes to financial planning services, credit unions can provide a superior alternative to banks and mortgage lenders. Unlike banks, credit unions are non-profit organization so their primary interest is in making/managing money for their clients, not the company. Likewise, banks and lenders can be limited in their services because they have to follow a standardized corporate structure, but credit unions have the freedom to offer more-personalized services that are tailored to your specific needs.
Regardless of your income level, financial planning can help you meet your financial goals while still enabling you to live in everyday comfort. Let TDECU Wealth Advisors help you with a financial plan that will not only optimize your current income but also help you invest for the future.