Perhaps you are in a situation where your monthly income varies wildly from month to month. Wouldn’t it be calming to know exactly how much money would be available? This method is perhaps one of the simplest, yet the least used.
Get a month ahead, and live on what you made last month.
Billy works as a sales representative for his company. Some months he makes over $6,000 while other months he sells nothing and only gets his base salary of $2,000. Billy gets really stressed by the middle of the month, because he doesn’t know if sales will pick up, or if he will have to start cutting expenses.
Billy then reads this article and starts saving. After a few month he saves up $3,500. Billy’s then gets a check for $2,200. Instead of living off that $2,200, Billy lives off the $3,500 for the month and puts the $2,200 in the bank. Billy knows that next month he has only $2,200 to spend, so he can plan accordingly. Even though next month will be difficult, he knows exactly what he has to live on. That cuts down his stress.
Why just one month?
If you think staying one month ahead helps reduce stress, how about staying 3 or 6 months ahead? The beautiful part about staying months ahead is that you can average your earning! If Billy had a 3 month reserve of $2,500 $4,000 and $3,500 he could average the three to get about $3,300. Instead of having a monthly check that varied by thousands of dollars, it would start to vary by only a few hundred.
Not only would his wages stay more constant, but if Billy lost his job he would instantly have a 3-6 month emergency fund. Billy no longer lives a stressful life.
Can you imagine if the world’s governments lived by this principle? By staying one year ahead, they wouldn’t need to “forecast” their earning and could always avoid budget deficits. Social programs would know a year in advance what was in store for them, and people might begin to understand the government is not a never ending checking account.
A solid financial plan includes an emergency fund. By saving 3-6 months of wages you not only are protected from the financial storms of life, but have the ability to keep your monthly income more averaged. This will cut down on financial stress and help you live a happier life!