Surviving a Feast or Famine income
Being an independent training consultant can be an extremely rewarding profession. You can work to your own clock, you get to meet interesting people and if all goes
well, the rewards for delivering a professional service can be substantial. A professional training
provider has the potential to earn seven figures per year, but even the most
skilful trainer can come unstuck if the market turns against them, a client
fails to pay or something prevents you from working. So while your career can yield an above
average income, regular contracts are by
no means a sure thing.
Individuals relying on a commission or contract based incomes have to master a unique set of money management skills to cope with the ebb and flow of money.
In the current environment of economic uncertainty and corporate belt tightening
it is even more important to get your
financial planning right.
Riding the feast or famine roller coaster can play havoc with your budget and also your ability to save; so here are tips to handle a fluctuating
First ensure that you are living in accordance with your average annual income i.e. that your monthly expenses don’t exceed your average annual income
divided by twelve. Many people living on commission get over excited about
landing a big deal and buy houses and cars based on the best case scenario, rather
than looking at averages.
You may think budgeting is for sissies and people who have nothing better to do with their time but a well planned budget can keep you in the
black. Once you have worked out the monthly amount that you realistically earn
you need to budget very carefully to pay all your regular accounts – bond, car
instalments, medical aid and utilities like electricity and telephone.
Set an amount that you will spend of variable costs like groceries and entertainment etc and stick to this figure. With a plan in place to cover the basics you can
move to the next step.
When you have a good month resist the temptation to spend everything you have earned, transfer some funds into a money market or call account. If
you are not disciplined pay a few accounts in advance, even better, put the
funds into your bond to reduce your exposure to interest rates. Banks are
becoming more sticky about the use of access bonds so make sure you know your
banks policy on withdrawing funds if you need access to them in a lean month.
If you have a number of high commission months take advantage of this opportunity to build up an emergency fund of 6 months income. It should be enough to cover
all of your fixed expenses. This will put you in an excellent position to
survive a short to medium term ‘drought’. Having six months expenses covered
also means that you can take an annual vacation without feeling that you’re on
“unpaid leave”. Another benefit of building a cushion is that if you experience
a financial crisis and need access to quick cash you will not have to raid your
It will take you a full year or two to establish what your average monthly income is. Only when the current
trend of prosperity has stood the test of time and looks set to become the
norm, do you increase your budget and your standard of living. People are often
shocked to see what they earn when they look at annual trends, its often less than what they imagined because they tend to
adopt the big deals as their benchmark.
If you are happy that your monthly income is stable you can then spend accordingly. However before you put the deposit down on a bragmobile , you also
need to factor in retirement planning; people who earn big incomes are
notoriously bad at saving for their retirement because they believe the big
cheques will keep on coming. In order to provide for retirement you need to
save at least 15% of your pre tax income for 25 years. This will allow you to
support yourself for twenty years, depending on your lifestyle.
It is important to invest a regular amount of money into a structured savings plan each month. An independent financial advisor will be able to help
you get the right mix of investments. A diversified investment portfolio is the
key to a successful retirement plan.