H.E.N.R.Y. With irregular income. How should I tackle budgeting?

[swenne120]

I am 25 and live in the suburbs of a major US city. I’m a “High Earner Not Rich Yet” mostly because I just started earning more than a couple thousand dollars a month in the last 18 months or so. I’m in 100% commission sales and my income goes from $0 to periods like June/July this year where my pre-tax income was $90k each month. I grossed about $345k in 2021 before some work related expenses. Probably more like $225k gross income. This I’ve already earned that much and will probably end up doubling up but I really spent too much the first half of the year (I’ve stopped doing that the last couple of months)

I have a house that’s worth about $600k with a mortgage around $450k on it. I have an “emergency fund” with like $10-20k in it depending on how long it’s been since the last time I’ve been paid and I max my retirement accounts. No student debt. 1 car note and a lease for my spouse.

I just find budgeting my income a daunting task because of a few reasons. Some of its lack of discipline and spending most of what I make except for what’s gone to retirement accounts. And feeling like I’m on top of the world and earning a ton and then not earning anything for a couple of months. My income is getting more predictable the longer I do my job but I’m not “there” yet.

Does anyone else have a similar situation and can share from experience? All other advice is also welcome. Thanks for your help!

 

[ryckers_prayer_warriors]

@swenne120 Figure out what your actual monthly commitments are. Write them down. Then figure out what it will cost you to max out your retirement savings. Then decide how much you think is reasonable to spend on fun stuff so you can still enjoy your income. And then invest the rest into VTSAX and get rich. Reading “the Simple Path to Wealth” is a great/common rec here, too. You should consider it.

 

[swenne120]

@ryckers_prayer_warriors Thanks, I’ll check it out. Solid advice

 

[resjudicata]

@swenne120 I’m kind of in the same boat as you. 25, just got a job couple months ago with annual salary 400k+ but no house yet. This may not work for you but I can share with you what I do.

Outside of my mandatory expenses(rent, memberships, subscriptions), I allow myself to spend $500-1000 a month on things like dining out or any other recreational activities and I try to eat at home as much as possible. With that monthly budget, I try to break it down by weeks of the month. So if a month has 4 weeks, I give myself a budget $250 a week. I also use my credit card to pay for everything, which make it easy to see how much I’m spending that month because I pay off my credit card every month. That’s literally it, nothing too crazy. That range might be a lot for some people but for me it’s not much, considering I bring home around 21k post tax a month.

 

[kevinmvollrath]

@resjudicata What do you do?

 

[resjudicata]

@kevinmvollrath Swe

 

[user2016]

@swenne120 Disclaimer: Because of the nature of my job, I get the same check every month, so my reasons for what I do will be different than yours, however, I think the general principal could still help you in this situation. Take the following with a grain of salt lol.

Sit down and figure out what all of your NEEDS cost each month. This would be your mortgage, car payments, food, gas, insurance, etc. With the possibility of going several months without a check because of being commission based, figure out what a realistic savings for these expenses are. Would you feel safe with 6 months worth of these expenses saved? 9 months? Whatever your sweet spot is, calculate that total. Now open a checking or savings account with a goal to ALWAYS have that amount in the account. Set all of these payments to auto draft from here.

When you get a big check, the first thing you do is make sure the above account is at the level you set! So, if you didn't get a check the last two months, this account would be two months short as the bills were still getting paid. Next month when you get a big check, refill the account. This should help keep you from struggling with the basics in months where you don't have a commission check coming in.

What you do with the rest is up to you! I keep the following accounts:

1. a checking account for bills (which includes the extra month's I described above)
2. a checking account for "fun spending" (whatever I want to use it on, but it's a prebudgeted amount for each month so I don't go crazy lol),
3. a savings account for emergencies (if I lost my job my bills would be paid from that first account for up to 6mo, but if I also happened to get hurt, or suddenly needed a new car or new roof, those expenses would come from this account)

The rest of my money goes to paying off debt and retirement. I personally want to have all of my debts (house/car/student loans) paid before I start investing, but I'm also super risk adverse. Yes, I know I keep WAY more in "liquid" funds than most people, so again, take it with a grain of salt. I ended up filing BK many years back because everything went wrong at basically the same time, so I set my accounts up to weather any storm that comes my way in the future!

 

[swenne120]

@user2016 I like this idea. My monthly necessary spending isn’t all that high luckily (unless I do stupid things like buy Veblen goods) so I think this might be an easy way to operateI’m not uncomfortable with a lot in cash, I don’t really think I’m missing the boat investing since my income is rather high. I’d ideally like to pay off my house soonish as well (7 ish years)