What's Your Minimum Required Income?

Sorry I’m late with this one, folks. Blame the tiny human lying next to me in a bassinet making dinosaur noises all night. I couldn’t keep my eyes straight to look at a computer screen the last few days. All is well though, nothing a nap and a gallon of coffee can’t fix. Let’s talk money!

I pride myself on being a Cash Flow Queen. This means I know what money’s coming in and I know what’s going out and where it’s all going. Why do I track money this closely? Well, partly because I’m always working through my scarcity mindset (never said I was perfect!!) and partly because I’m a Type A control freak who loves spreadsheets and personal finance apps. I yam, what I yam.

Today I want to talk to you about a concept I created (or at least claim to have created) and think about a lot as a household with fluctuating income. My husband’s monthly income varies based on business sales and traditionally my income has fluctuated slightly based on bonuses and commissions as well. This can make it VERY difficult to know how much you can spend and save responsibly. I have a simple calculation and framework to help you solve this problem…

INTRODUCING - MINIMUM REQUIRED INCOME! TA DA!

What is a minimum required income you ask?

This is the amount of money you need to take home in order to meet all of your basic needs without having to implement massive changes/cuts in your life. So with your life remaining status quo, how much money do you actually need to bring home each month? That’s your minimum required income. Of course, this is how I define it, you can be flexible by adding in a little discretionary or cutting it down to bare bones, bills only. What’s considered “required” in your minimum required income is up to you. I don’t know your life.

How do I calculate my minimum required income?

Here’s how I do it. First, I tally up all of my monthly required spending. I personally cut out most of the discretionary for this calculation, and focus on what’s really mandatory in my life as it is right now. Let’s say my total is equal to $5,000 per month. This means I need to take home (after taxes!) $5,000 per month to maintain my current lifestyle. This would be my net minimum required income. I can then go over to smartasset.com and use their calculators to determine the gross amount I need to earn in order to achieve this.

Why should I know my minimum required income?

This number is helpful in many ways. First, if you work a job with variable income, you now have an idea of how much you must make to keep your current lifestyle. If you aren’t meeting this number, you need to start cutting expenses. If you are exceeding your minimum required income, now you can start to plan where you’d like to save, invest, or spend this extra money and how much of it you can allocate elsewhere responsibly.

It’s all about confidently knowing your numbers. With a lot of my former financial planning clients and my current coaching clients, we discover their minimum required income and then create a budget for if they make less than that number (say 20% less) and one if they make more (say 20% more). This works great for freelancers, gig economy workers, and sales folks. Creating budgets for below and above your MRI also gives you safety if you know you’re going to have a lean month as well as a motivational goal if you think you can earn more.

Long story short, knowledge is power. If you know how much you need to make, it actually takes a lot of pressure off of you. Let your minimum required income guide your spending decisions.

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Hope you had a great Memorial Day weekend!

-Catie

Hey! Every now and again I’m going to recommend other cool newsletters. We’ll start with this one! I’m a big Prof G fan.