Using Sinking Funds to Battle an Irregular Income

Most of our income is self-employment income from my husband's business. While we're over the shaky early days of a new business and the income is good, it is also irregular. Some months are great, others less so.

An irregular income can wreck havoc on even the best of budgets. It's part of why budgeting has never worked well for us.

In the past, we tried the "charge everything and throw money at the debt at the end of the month" approach. Predictably, that didn't work very well so we made the decision/commitment to switch from credit to debit. (I blogged about that here.)

So the question became how to deal with an irregular income while being committed to a cash only diet? The answer for us is the use of "Sinking Funds." Sinking Funds, as we use them, are savings amounts for expenses that don't occur monthly but will occur eventually. I've set up five sinking funds in Quicken for the following categories:

• Home Maintenance and Improvements
• Car Maintenance and Replacement
• School Tuition
• Vacation
• Christmas

I have targeted monthly amounts to set aside in these funds, based upon what our expenses have been in the past and what our plans are for the future.

So how does this help me deal with an irregular income? In the lean months, the Sinking Funds aren't funded or aren't funded fully and in the flush months we play catch-up. Since expenses aren't occuring in these categories each month, we don't have to worry about something not being paid; it's just a matter of catching back up on our savings. It's as simple as that.

If, like me, you're dorky enough that you've get really excited about paying down debt or saving for a goal, then you're going to love setting up and funding Sinking Funds! Think of all the things that you would love to have the money set aside for when the need or want arises, set up a Sinking Fund for each one, and then start socking the money away.