Automatic investing on 100% commission

[Theficop]

Just as the title says, I am wondering what strategies people have for setting up automatic investing when you are on a 100% Commission pay (such as real estate). I have not found a solution to automate investing when one month I may have $20,000 income and the next month may be $0. This is simple when you work a job with regular, or even a base line salary. So.... thoughts?

[bwall]

Not many people here have the situation you describe. But, there are two basic ways you can handle this, depending on how you pay your other bills;

1) Treat is like a mortgage payment. Every month, say, $1000, gets automatically deducted. At the end of the year, if it was a good year, top it off with as much as you can. Advantage to this method; you won't think about it as a variable cost and then you can amass quite a bit in a short time.

OR

2) Track the amount with your income. For example, two months, no income = no deductions. Third month, $15k in income, deduct $3000 ($1000 for that month and $2000 for the previous two months). At every payday, write the biggest check you can. Advantage; you can adjust your costs with your income. Disadvantage; it takes ALOT of discipline to write a big check like that on payday.

Either way you need mental discipline. The good news is that you probably have what it takes if you can handle a 'feast or famine' lifestyle. Most people do not have the courage required to live like that.

[terran]

You could set up a bank account with your average spend times some number of months with automatic transfers to a spending account to simulate a paycheck. This could include automated savings among the amount transferred. The number of months should probably be the number of months over which your income tends to even out. That is, if your quarterly income tends to be about the same from quarter to quarter, keep three months. If you get a big commission or bonus once per year, keep a year. You'd still want to keep an eye on things if your income starts trending down (as evidenced by the account balance dropping faster than normal) and adjust your automated investing (and spending) accordingly, but this isn't that different than someone who loses their regular job except you'll have more warning.

This will still be suboptimal, on average, compared to investing as much as you're comfortable with as soon as you earn it, but if you want to put things on autopilot it might be a way to go.

Don't feel like you need to answer these questions "out loud" on the forum, but some food for thought: Why do you want to automate savings? Is it because you want to be able to mostly ignore your finances? Do you have trouble not spending everything you "have" so you're trying to set things up to "pay yourself first"? Something else? Are there things you could work on to change your mindset? Could you try to consider manually investing a big chunk of change a reward for a job well done in a high commission month? Maybe seeing how much you can save each month with your variable income can be something you look forward to (I know it is for me)?

[robartsd]

Account 1: Emergency Fund/Short term savings. Set a target amount for this account. Deposit all pay into this account. Whenever this account ends up over target after depositing pay, immediately invest the difference to bring it down to the target (it would be really cool if a bank let you automate this, but I don't know of any that do).

Account 2: Budget Account. Set an automatic transfer from Account 1. All ordinary spending goes through this account. You may also set up a fixed recurring investment from this account as part of your budget.

[tralfamadorian]

I also have lumpy income. In the beginning of the year, I save all the income coming in up to my yearly estimated living expenses in a savings account. After that, all my income goes to taxed deferred then taxable investments. It may not be the best method but it's easy and eliminates stress for me.

[MustacheAndaHalf]

When you start investing, dollar cost averaging makes the decisions smaller and may be a good way to get going.  But ultimately, it's better to invest with money intended for investment rather than leave that money in cash.

Think about why you're investing in stocks instead of cash - for the higher returns over time.  But that's the same story each day, week or month.  Take the lump sum, and get higher expected returns by investing instead of leaving it in cash for a future investment date.

[marty998]

Not many people are 100% commission - even real estate agents would be paid a base retainer right?

If you truly are 100% then you can't automate it and send money to investments that you don't have.

Having said that, most payments are now click of a button. Is it really that much more of an effort to manually make an investment deposit?