Budget for Irregular Income

Most people with irregular income think it's impossible to budget with a changing paycheck. The truth is, it is not impossible, it just takes better planning. The easiest and most functional way of budgeting for inconsistent paychecks is via the Two Checking Account method.  This method creates a separate account just for your fixed monthly expenses, and uses the other account for monthly variable expenses that are more controlled.

How To Approach an Irregular Income Budget:

1. Calculate your average paycheck from the last 3 months. If you are paid weekly you will average out the last 12 paychecks. The goal is to set a baseline for income.
1. EX:   Bob had 6 paychecks in the last three months that averaged $1,473.50

2. Calculate your monthly paycheck based on your paycheck frequency
1. EX: Bob gets paid twice a month (1st and 15th) his average month is $2,947
2. Add any additional monthly income you might have (interest, rental income, etc)

3. Make a list of all of your Monthly Bills. I call these your monthly obligations - expenses you have each month that hardly change. Examples Rent, Mortgage, Utilities, Cell phone, gym Memberships,  Credit Card Minimums, Loan Payments

Rent	$    670.00
Cell	$       65.00
Utilities	$    124.00
Cable/Internet	$       78.00
Student Loan	$    228.00
Car Loan	$    326.00
Insurance	$       87.00
Visa Card	$    127.00
Gym	$       32.00
Total:	$ 1,737.00

4. Divide Total Obligations by number of paychecks in the month
1. EX: $1,737 / 2 = $868.5
2. This value represents how much you will need to save from each paycheck to cover all of you Monthly Obligation expenses

5. Budget Remainder of Monthly Paycheck with Remaining Categories
1. $2,947 - $1,737 = $1,210.00

Savings	$    100.00
Groceries	$    265.00
Shopping	$    200.00
Entertainment	$    250.00
Restaurants	$    120.00
Personal Care	$    100.00
Home Supplies	$    100.00
Misc Expenses	$       75.00
Total	$ 1,210.00

6. Create Paycheck Rules

Paycheck rules are set dollar amounts that will be taken out of each paycheck to cover the monthly obligation expenses and saving goals.

1. Ex: Bob's Paycheck Rules
• $868.50 will be transferred to the Secondary checking account
• $50.00 will be transferred to the savings account

Things to Note

1. It is very important that you pay your monthly obligations from Checking Account #2, and use Checking Account #1 for other monthly items. The goal is to always know you are covered for your monthly expenses even if your paycheck dips below average.
2. When in doubt - Underestimate Income and Overestimate Expenses

3. If your income varies based on time of year, you should readjust your budget averages each couple of months. It is also advisable that you put more into checking #2 than the minimum as to create a buffer

4. In the event you have a much larger paycheck than average (Way to Go!) create a plan for the excess amounts. Set  percentages for the extra money based on saving, debt, or personal needs.
1. EX: Bob had a great sales period and his paycheck was $2,474.50 Bob's plan for the extra $1,000 is:
1. 40% to Savings  $400.00
2. 20% to Car Loan $200.00
3. 20% to Checking #2 - $200.00
4. 20% to Fun Trip - $200.00

Personality Types and Money

Being a budget coach, I've come across different personality types when it comes to money. It seems some can handle the rules of staying within a budget and others fail within weeks. One possible reason on why some can stick to budgets and others can't is rooted in their fundamental personality type. Myers Briggs is  one of the most popular categorization of personalities. It tries to divide a population into 16 categories, based on 4 dichotomies.

Extrovert vs Introvert - Describes from where people draw their energy.

Sensing vs Intuition - Are information gathering functions; describe how new information is understood and interpreted.

Thinking vs Feeling - Are decision making functions. These functions are used to make rational decisions from either the mind (thinking) or feelings.

Judging Vs Perceiving - Describe how one relates to the outside world.

These 16 personality types are then grouped into 4 broader categories:  Artisans, Guardians, Idealists, and Rationalists. An Income Assessment done by the Career Assessment Site shows that of all of these personality types Rationalists scores the highest average household income.   ENTJ's are highly driven take charge people, thus majority of large Corporate CEO's fall into this category. Idealists, on the other hand, and especially those who fit with the INFP description (highly compassionate and focused on making the world a better place) are less likely to cash in on their traits. These INFP types are the world's Musicians, teachers, and writers. It does make sense that certain personality types are drawn to certain careers, and thus help determine earnings potential and success with money. Different personalities require different approaches to handling money.

Artisans ( ESTP, ESFP, ISTP, ISFP)

Artisans love having freedom of choice  and will be highly spontaneous in nature. They are focused in the here and now of enjoyment. Since they’re characterized by a tendency to be compulsive, and are unlikely to think long-term, Artisans are often carefree when it comes to spending, and not concerned with saving for the future.

Money advice for Artisans -best way to approach money is to have a simple system of budget tactics such as auto draft of paycheck into a savings account. Artisans don't want to deal with Spreadsheets and formulas. Simple is always better. The Envelope system will benefit Artisans for controlling spending.  

Artisans make up about 38% of the population.

Idealists (ENFJ, ENFP, INFJ and INFP)

These folks take money personally and see spending as an extension of themselves. Idealist want to be happy, and want those around them to be happy. They are concerned about the emotional needs of themselves and others. An Idealist can be found constantly picking up the tab for friends, or buying expensive gifts for family members.  They may even overspend on themselves with the thought process of "I'm worth it".

Money advice for  Idealist -  the best way to handle money is to come to terms with "Quality is better than Quantity". For example: Spending time with someone for free can be just as rewarding as buying lavish gifts. They need to focus on the long-term happiness of saving vs the short term fulfillment of spending. Visual aids such as Saving Meters will help Idealists.

Idealists make up about 12% of the population.

Guardians (ESTJ, ESFJ, ISTJ and ISFJ)

Guardians are conservative on change but didactic in preparation. They think ahead, make sure their future is taken care of and are consistent with their spending. Even though these people are very good at budgeting, they are fearful when it comes to investment risk. A Guardian will most likely put money into very stable investments over taking acceptable risk. A 1% return in a savings account, is better for them than a potential 10% return in stocks. Dealing with unpredictable negative situations such as a job loss can throw a guardian into chaos.

Money advice for Guardians - Extend your emergency fund and savings from 4-6 months to 6-8 months to better deal with security.  Balance your risk with your age when it comes to investments. A young Guardian can survive the market ups and downs and end up ahead investing in stocks over "safe bets" of bonds.

Guardians make up about 38% of the population.

Rationalists (ENTJ, ENTP, INTJ and INTP)

The Rationalists have a no-nonsense, logical approach to decision making. Their greatest strength is strategy and will focus on long term plans and investing.  The iNtuition part of their personality will drive them to trust themselves and choices. A Rationalist will spend money based on their own analysis, not others.  Which means in relationships, the Rationalists may be overtaking the money decisions causing a bit of contention.

Money advice for Rationalists - Loosen the purse strings and let your partner have a fair share in money decisions. (Even if you think they are wrong) Create a "Fun spending" Account that will allow you to enjoy money while knowing your savings are safe in other accounts.

Rationalists make up about 12% of the Population

Choosing the Right Bank Account

Not all banks are created equal, and not all account options are the same. You may get higher interest, but be paying higher fees.  You need to chose a bank account that is right for you and your needs.

Consider the following when choosing a Bank:

Can you qualify for special accounts?

There are banks and account options specifically geared towards Senior Citizens, Students, or Military Families.  Seniors tend to use their debit card less, write more checks, and make withdrawals less frequently than other checking account holders, and the accounts offered to them reflect this difference. Senior checking accounts tend to come with free checks. Student Accounts are aimed at those 18-24. Features include unlimited free check writing, no monthly service fee, and a few non-bank ATM withdrawals each month with no charge from the bank.  Military families not only have options for accounts, but also specific banks. Military Banks tend to be more lenient on fees and options.

How Many Accounts do you need?

If you keep a savings account at the same bank as your checking account, you can get discounted perks or no annual fee credit cards. Look at the options of bundling your accounts at one location.

What will be your Average Account Balance?

You will pay less monthly fees with higher account balances. All require a Minimum Balance though, being as low as $50. The average balance required for a no-fee no interest bearing checking account is around $150.00. To generate interest without fees, you will need to keep a balance higher than $3,000. Interest on accounts these days is so low, it is not really worth paying any extra amount to get a interest bearing account.

Do you need checks?

Checks are being used less and less. But some bills still require a check (Apartments) If you can get away with not writing more than 10 checks a month, then opt out of unlimited check option accounts

How Often will you need an ATM?

If you need cash often, make sure your bank has multiple convenient locations. These tend to be your national brand banks. Smaller banks are now offering X number of free withdrawals, or X dollars back in transaction fees.  ATM fees can be a double whammy (fee from the ATM, fee from your bank from not using their ATM) It is very important that you chose a bank to match your ATM needs.

Think outside Traditional Bank Accounts

If you don't need to physically go to the bank, think about adding a high yield checking account to your financial profile.  High Yield Accounts can offer 10X the interest rate of brick and mortar banks. For list check out: http://www.moneyunder30.com/high-yield-savings-accounts-compared

Credit Unions are great options if you don't need all the bells and whistles of a bank. Credit Unions are not for profit and generally have lower fees than normal banks. The catch is, do you need to meet the membership requirements.  Find a Credit Union near you http://www.asmarterchoice.org/

One final note: Since banks these days have such low rates on traditional saving and checking accounts, try to keep an acceptable balance, but put extra money in higher yield accounts such as Certificate of Deposits. Banks can change the interest rate when they want. CD's have interest rate locked in for a predetermined time. Your bank and online banks (CapitalOne360) have different options for CDs.  www.Nerdwallet.com is an unbiased site that compares Checking, Savings, and Credit Cards from Banks around the US. 

Fingerhut = Bad Financial Decisions

 I recently saw an advertisement on TV for Fingerhut, and how you now can get ALL the gifts you want at a low price.  This intrigued me considering I love a good deal. However, what I found was another Rent to Own Money Sucking Deal. All of these Payment Based Shopping Sites are terrible financial decisions.  They lure you in with promises of savings and deals, but in the end you are stuck in a wormhole of debt.

Why Fingerhut is a bad idea:

1. Items listed on Fingerhut are brand name goods,  From Household items to high End Electronics. However, the pricing is highly inflated. I took a sample of 20 items I considered key Christmas gifts and compared FingerHut pricing to Amazon.  On average, Fingerhut items are 14% more expensive than Amazon. (Shipping and Handling not accounted for)

2. Fingerhut is just another Credit Agency that happens to sell goods. Their "low payment" options are backed by high interest rates around 25%.  

For Example: A Keurig Coffee Brewer is listed at $140.00 with 15 payments.  Using Finderhut payment plan this coffee maker will minimally cost you $157.34.  (Whereas buying at Target it is $109.00). 

3. Shipping Costs may be rolled into Final Finance Price, which means you will be paying Finance Charges on shipping. Fingerhut has a tiny link at the bottom of the page that shows the true cost of ownership based on product prices.  After a 5 min search I was able to find that the $139.99 Keurig would eventually cost between $157 - $300.00!!! (see Table below)

4. Fingerhut likes to pride itself that it can help build Credit with the Fresh Start Program. First off, if you have a terrible credit score, its most likely because you were not able to repay loans..so why are you continuing to borrow money??  You should never  try to get a better credit score by increasing your debt. Payoff what current debt you have, and continue to pay all other bills (cell, electric, etc ) on time.

Example of how Buying a Keurig via Fingerhut can hurt financially.

Debt Payment Schedule: Debt Snowball

Do you have multiple debts you want to pay-off, and pay-off quickly? There is no better way to get rid of debt than by using the debt snowball method. I originally heard of the debt snowball from the Dave Ramsey show and have found it quite useful in getting debt under control.

The jist of the snowball is quite simple.

1. Write out the list of current debts and payments.
2. Focus on one of the accounts ( usually the lowest balance or highest rate) and add additional amounts to pay off that loan

3. Continue to pay the minimum payment on the others debt

4. As soon as the first loan is at 0, roll what you were paying on that debt into the next loan

5. Continue to roll your payments as each loan is paid-off

It's important to have a Debt Payment Schedule to track payments and timelines. A comprehensive  schedule is available on this site for downloading.  A training video on using the Debt Payment Schedule is available on the Simple Saving Habits YouTube channel.

Simple Savings Habits YouTube Channel

Quick Summary on how to use the Debt Payment Schedule

1. List out all of your current debts

2. Determine how much each month you can contribute as an additional Payment, aka Snowball

3. Rank debt by importance of being paid off

4. 
   Optional: Breakout the Snowball amount among the debts to compare between payment methods

5. Using the Snowball Schedule Tab, toggle between the two options to see which is best for you.
1. You can continue to play around with the rank and new payment to create the best option for your payment plan

6. Once you found the best approach for debt repayment - Print off the Snowball Schedule  to keep you on track
1. If you are able to make additional payments during the repayment time period, note those extra  payments in the schedule. This will help decrease interest paid on loans, and decrease time it takes to pay off the loan(s).
1. 

Using an Amortization Table

An amortization schedule is a table detailing each periodic payment of an interest bearing loan. It is useful for knowing the true cost of a Loan, the breakout of a monthly payment for principle and interest, and changes in the loan due to additional payments against the principle.

Having an amortization schedule set up for a large loan like a mortgage can help a person make a plan to pay off the loan sooner and thus saving hundreds, or even thousands of dollars.

The downloadable amortization loan schedule for Simple Saving Habits is easy to use. You can use this schedule to analyze a current or future loan. For a current loan, you will need to know the Total Loan value as of today, your minimum monthly payment, and the Interest rate on the Loan. (APR)

A training video is also available on the Simple Saving Habits youtube channel that shows how to use the Amortization Schedule.

https://www.youtube.com/channel/simplesavinghabits

1. Create the schedule by filling out the required Loan fields (Today's Date, Current Loan, APR, and Monthly Payment)
1. If you do not have a current loan, use the box on the right side to estimate a monthly payment based on an expected APR and loan.

2. Loan Summary gives an overall snapshot of the Loan.  The Total Loan represents the Total Cost of the Loan. (borrowed amount + accrued interest). When you pay more than the minimum payment, that money will go against the principle of the loan and reduce the total interest and time  it takes to pay-off the loan.

3. The Loan Schedule shows every payment made until the Loan reaches 0. Important fields to note in the schedule are:
1. Principle and Interest - Each payment is broken down into a value that goes against the principle of the loan, and for interest incurred.  The Principle will always start off lower with the first payment, and increase over time.

1. Cumulative Payments - The shows how much you have paid for the loan at any given period of time.

2. Total Loan Cost - This shows how much the loan has cost at any period in time. It is calculated as total Payments + Remaining Balance of Loan

Ways to Save Money and Pay-off Loans ahead of Schedule

1. Increase the Monthly Payment - Determine an amount that can be paid as extra every month with the minimum payment. Adding $100 dollars each month, can save $33,000 worth of interest, and pay off a mortgage 5 years earlier.

2. Add occasional Payments that vary throughout the life of the loan - If you are unable to commit to a monthly payment increase, use the Extra Payment Column on the Schedule Table to make payments against the loan.  These could represent payments made due to Tax Return refunds once a year.

Dollar Shave Club

Why are Razor Blades so expensive? I just don't get how a tiny sharp metal object that you throw away can cost over a hundred bucks a year.  When I saw the Dollar Shave Club sponsored on my Facebook feed, my interest was peaked.

Doing quick research The Club seemed like a good deal. The Dollar Shave club offers three Razor  options: The Twin (2 blades) The 4X (4 blades)  and The Executive (6 blades). I, like Goldilocks, chose the option that was right in the  middle.  I have also been using the Schick Quattro Razor which is 4 blades, so this gave me a direct comparison of quality.  A four pack of 4X cost me $6.00 and was even shipped with a free razor handle.

The quality of the razor blades are good overall. In comparison with the Schick Quattro Titanium, they do however dull faster.  I estimate it takes 4 of the Dollar Shave 4X blades to last as long as 3 of the Schick Quattro Titanium blades.  This makes the cost of the Dollar Blades slightly increase from $1.50 to $1.88 per blade. ($7.52 per 4 pack)

Is this still a good deal for you?....Well, it depends...

Price Shopping, the lowest price I could find for Schick Quattro 4pks were $8.65 with no coupons. (Though it did include using a Target Red Card for 5% discount)   Using some of my favorite couponing sites (krazycouponlady.com and hip2save.com) I did find some historical coupons that would have dropped a package of 4 blades to under $5.00. This included using a manufacturing coupon, a store coupon, and a sale item.  So, if you are an avid coupon clipper and love working for the super cheap razors, Dollar Shave Club isn't your best deal.  If you do not bargain hunt for razors and just buy at whatever price when needed...Dollar Shave club is for you!

Even after knowing it is possible to find cheaper quality blades, I still prefer Dollar Shave:

•  Dollar Shave Club includes a FREE razor with your first purchase. Buying a single razor at the store will set you back around $6.99

• 6 bucks is 6 bucks...no additional taxes for buying razors through the Dollar Shave Club

• No coupon clipping or bargain hunting

• No longer running out of blades, 4 pk of blades is automatically shipped each month. If you do not need blades that often, there is a "Not So Hairy" Option you can change to. That ships a 4pk of blades every other month

For more information on the club, or to join now. Check out: http://www.dollarshaveclub.com/