Managing Income

No matter what type of income pays your bills it is always a challenge to stick to a budget. Over the course of my career in sales, finance, and hospitality I have worked with monthly income, bi-weekly, weekly and daily income. There's a few things I've learned along the way that I am happy to share.

Monthly income is dependent on stretching the budget until the next month's allotment. While it's certainly not my favorite income method, it does require a great deal of tracking your spending. In my not-so-humble opinion, this is the most difficult way to live unless that monthly check is large enough to account for your living expenses plus extra to use as you please (crafting hobbies, spoiling family, etc).

Bi-weekly is the most popular of employers and the most common for anyone in the corporate world. While there may be some variation, it is the easiest to budget for and maintain. Here you can budget for the month with two allotments and not stress as much as if you had a monthly income.

Daily income is the most difficult to manage next to monthly. Most of the time you're working you're estimating either a percentage of your sales or how many more clients you can schedule for the next day. It involves a great deal of budgeting forward which is heavily discussed in my previous post, Wednesday Notes: Budgeting as a Server, and generally requires the individual to have a solid knowledge of their monthly expenses as well as the decision to work extra if the opportunity arises throughout the week. It requires a great deal of sacrifice and as much as I enjoy that particular type of work it is very demanding and challenging.

So how do we do it? How do we manage everything and make it work for our financial needs?

There is no straight-forward way to estimate exactly what we're going to need for each month or each year. However, there is something the financial experts recommend for budgeting in advance and that is the 50/30/20 rule.

Hypothetically 50% of your income should be used to pay bills such as rent, electric, water, health insurance (unless that's accounted for by your employer), and groceries. 30% is for discretionary expenses (tickets to events, going out to eat, beauty treatments, etc). 20% is for savings, retirement, or both.

If your budget is $3,000 a month then the breakdown would look something like this:

$1500 for rent/mortgage, car insurance, water, electric, groceries.

$1,000 for movie tickets, restaurant outings, nails/hair

$500 for savings

This works if your rent is less than $700, your car insurance is less than $300 and the rest of your bills fall within a very inexpensive category of payment. Where I disagree with this method of budgeting is in consideration of how the average person lives. The average rent is much higher than $700 and depending on where you live your car insurance may also be much higher. This budget also doesn't particularly include enough income set aside for major expenses such as a hospital bill. Experts also recommend a 70/20/10 budget which is similar, but again restrictive.

Again, let's say your budget is $3,000 a month.

70% = $2100

20% = $600

10% = $300

$2,100 is better for managing costs such as rent and mortgages along with the rest of the bills. $600 is even better for discretionary income but $300 for savings sounds a little tight. First and foremost, only you can decide what works for you and your household needs. the 70/20/10 is good, but only if your costs are lower than average and you're not one person on one income. So let's build a budget that's set around your goals and makes you feel good!

Start by evaluating your income and where it's coming from. Is it coming from a job that gives you purpose and makes you happy? Or is it coming from somewhere you'd rather not be and dread come Sunday night? Is it making ends meet or is it tight (we're going to revisit this in the next post, so stay tuned! I promise this comment has a purpose)?

Next, evaluate your needs vs wants. Every summer, the restaurant industry in my town reaches a low point where hours are significantly cut and there's not a lot of income. So most servers have to pick up an extra job or make some serious sacrifices. Personally, I decided to cut back and start a side hustle during the season to head off the summer low. As a server, I can budget forward, pick up extra shifts, and budget for the extra money I'm going to need throughout the summer. To make the necessary cut backs I make a list of things I need, things I can live without, and things I'm unnecessarily spending money on that can be stopped.

Either way you choose to manage your income I'm a firm believer in starting with your expenses and goals. The experts have their opinions, but what matters is your happiness with Your Budget. This is the reason I started the Budget Millennial. To provide you with the trackers you need to help get things back on track or to start saving for your goals.

The Income Management Budget Tracker is designed to help you decide what expenses need to be paired down and how much income you have leftover. Some expenses are already accounted for while there is extra space for others I may not have thought of. Simply fill out your income, expenses and savings goals and discover where you can improve your financial standing to achieve your goals!

Income Management Tracker

Happy Budgeting!

TBM