Ahh, income. The one thing that no one has enough of, but everyone has. If you don’t have any income, hang up the internet right now, hop on your bike and go find a JOB! But for those of us who have some sort of income, we’ve got to do something with it. And that’s why you’re here. As the slogan goes, “Just because you make money, doesn’t mean you know what to do with it!”
Today I want to cover how to identify your income, track your income, and different ways that the “income” category fit into your budget. The focus will NOT be on how to make more money (I’ve already got a post on that), but on how to make do with the income you DO have. Too many people believe the answer to their financial problems is MORE MONEY! I call CRAP on that philosophy, and firmly believe that knowing what to do with the money you have is MUCH more beneficial in the short AND long term. So let’s get to it!
Income is ANY money that you own during the month. This includes (but is not limited to) disability, insurance payments, investment dividends, job wages, allowance, inheritance, and any other monies that become your possession in a given month.
How Much You Should Budget?
There are a few ways to approach this. Each method will vary depending on your payment schedule, the type of work you do, and if it is a regular or a one-time payment. Let’s take a look at a few examples:
- The Month Ahead Budget. Michelle and I have been one month ahead on our income since just after we got married. It’s a simple concept, but one that I credit as the most stress-reducing thing you could EVER do with your money. The income category in your budget would be one amount, paid on the 1st of the month. Think of it as living on a fixed income. You set your monthly income needed, transfer that amount over to your main checking account each month, and any extra goes to savings. Absolute best way to budget.
- The Bi-Weekly Budget. Many people are on this budget for the sole reason that their employer pays out bi-weekly. Not sure who came up with this, but it seems to have stuck, and 90% of the jobs I’ve had use this pay structure. It does make it difficult to budget, as you get paid on different days each month, and you need to adjust accordingly. Your bills are usually due the SAME day each month, so you are always aiming at a moving target. For this type of budget, I usually set up two columns, one for paycheck #1 and the bills that fall under those dates, and one for paycheck #2 and the bills that fall under the second half. It gets difficult when you don’t have much margin, so again, I recommend doing everything in your power to save money and be one month ahead on your budget.
- Irregular Income. This is common for those who are self-employed or working commission-based jobs. You may get paid a TON on the first week of the month, or get no cash money until week 4. The key to budgeting this type of income is ALWAYS having a buffer. Again (yep, here it comes) getting a month ahead will alleviate a LOT of headache if you’re in this situation, and, depending on the job, I recommend being two months ahead! For these situations, I recommend only budgeting on the bare minimum amount of income you expect to receive during the month. Anything on top of that is extra savings in your buffer, and will probably be used up the following month.
- Other Income. When you have investment dividends, bonuses, insurance payouts, side job income, and any other source on income during the month, I try to NOT count that money as part of your regular monthly budget. You can add it in to track in and use it, but even if it’s a regular payment, don’t use it to set up your budget (I know some people HAVE to live off their “other” payments, but in that case, refer to the “Month Ahead” budget above). These payments should be used to Turbo-charge your goals, such as debt repayment, retirement savings, replacement vehicle, vacation, etc. That’s it. If you can live without this extra money, then act like it isn’t there when putting together your monthly budget
Common Ways People Blow This Category
Laziness. There, I said it. Most reading this blog do not fall into this category, but laziness can definitely kill your income, and leave you wondering why you “can’t ever get ahead”. Now, I’m not saying I’m the ideal example, but one thing I can tell you that I am not, is lazy. I work 2.5 jobs to provide for my family, along with yard, house and car maintenance, to ensure that we can keep and enjoy what we have been blessed with.
On the opposite end, there are those that won’t lift a finger to work more than 12 hours a week because they’ve been able to survive in their parent’s basement for the past 33 years, so why try? Or there are those who make “enough”, hang their hat at their mediocre job, and do just enough to get by. Work is work, we all get that. But to not try because you don’t care, that is what makes a bad employee, and is also what gets you passed up for promotion and management opportunities.
Best Ways To Increase Income
If you want your income to rock harder than AC/DC on top of Mt. Rushmore in a thunderstorm, then get yourself motivated, excel in your position, ask for more responsibility, and then ask for more money! It really is that simple (notice I said “simple”, not “easy”). I have seen several friends and family move their way up through good ole’ fashioned gumption and Git-R-Done-ness (totally a real word. Look it up). The one thing they all had in common was a drive to excel, and under that were some AWESOME goals like starting a family, getting a house, etc. Find out what motivates you, set some BIG, FAT goals, and then work like you actually want to hit those goals someday. If you’ve done everything you can and still don’t have enough income, you can find other ways to strike it rich! Or check out how we survived on very little income.
Whatever Else I Feel Like Writing
I’m going to go a little bit Mr. Money Mustache on everyone here. The American Dream is alive and well, but so is the “exploding volcano of wastefulness” that is the middle class life. You would think everyone in America would be hiring out a financial plumber the way their wallets are leaking, but the problem is that all most don’t notice the leak, so you never fix it. You have gotten used to the way things are, life is comfortable, and cutting your cable, selling your new car, and living frugally would be too intrusive to your cocoon of a lifestyle.
Why am I saying this? Because you don’t need as much money as you think! If you ask most people how much money they need, it’s always a little bit or a lotta bit more than they have now. But the truth is, what you have now is what you have, and I bet you can manage it better than you currently are. You can constantly optimize your spending, making better decisions each week, and stop blowing money on stuff you don’t really care about. So when looking at your income at the top of your budget each month, don’t sob uncontrollably like someone just broke your Justin Bieber CD. Instead, look at it with confidence, plan to use it wisely, and challenge yourself each month to kick even more booty than last month. You are effectively giving yourself a raise by getting on a budget, so don’t worry too much about increasing income, and start focusing on being a great money manager with you already have.
Comments: Are you satisfied with your income? If not, what are you doing to increase it? Also, how do you budget your income before the month begins? Are you a month ahead, or still living paycheck to paycheck? This is the first of a very LONG series, so I would LOVE to hear some feedback on what you think, and how I can help more with this series. Thanks for reading!