Financial Planning for Irregular Income

Planning for goals is easier when you have regular source of income but could be difficult in case if you have not so regular or fluctuating income. This could include fluctuating income earnings made by professionals, artists, writers or any business owners. This could affect not only planning for your future but also the current cash flow management. So, how do such people plan for their financial goals?

Main areas of focus for financial planning for irregular income

a)Safeguard your Contingency funds – As a thumb rule, every financial plan requires the client to save for at least three months of their monthly expenses. However, for irregular income earners it is advised that you make a provision for at least a year or more to avoid any disruption in your regular family expenses. These expenses should focus on pure living expenses – including food, education, health, premiums, conveyance and tax costs. Beyond these lifestyle expenses need not be provided for a year’s time frame but around six months is sufficient.

b) Never skip your Premiums- It is essential to make sure you don’t skip or miss any of your life or general insurance premiums. As the risk insured if actually occurs could make a dent into your survival amounts.

c)Follow "Lump sum – Regular Periodic investment" mode – Invest the lump sum amount available during your income days in a earning asset for a while and then reinvest it in a systematic methodology into better yielding investments. It could get a little expensive than direct monthly investment but in long term could yield better returns. One can even manually, do the above arrangement to make the costs unaffected. It is recommended that if one is unsure of the investment avenue, he should use liquid funds to temporarily park your funds. Like if you receive Rs. 3 lakhs at any one point you can invest the same at one go in liquid fund / savings account and then invest them regularly Rs 25,000 monthly as per desired goal time frame.

d) Goal Planning- While planning the goals i.e. assigning monetary value to the goals and giving time frame to it, it is important you understand that although the goal could be years away your earning opportunities could be limited or low.  So, make the amounts desired as realistic as possible. If possible plan for essential and leave the discretionary goals for later planning.

e) Back up to irregular income – In case of irregular income, it is best to give a time frame to improved cash flow so that it helps you adjudge the situation, you cannot depend on this mode of working for a long time. The contingency funds also have a shelf life and would certainly evaporate slowly. If you don’t desire a backup income source, you need to trim down your lifestyle spending.

f) Stay debt free- It is high tendency to over spend during zero income days and then balance it out with credit facility available around you. People either ruthlessly use their credit card or personal acquaintances to fill the gap between need and funds. This is a viscous cycle and lands one in huge debt web. It could even give you a bad credit score.

g)Repay any loans – In case if you are repaying any loans taken for your asset purchase then repay at earliest or make a provision of the same in your regular living expenses. It is not wise to loose the asset midway due to unpaid installments. Try to speed the payments on receipt of any huge sums interim.