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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: LifestyleDeflation on June 18, 2016, 05:41:18 PM

Title: Thoughts on managing Seasonal Income?
Post by: LifestyleDeflation on June 18, 2016, 05:41:18 PM
Hi all, I run a seasonal business that generates income June-September only. The business currently generates enough income for the whole year with only part-time work in the off-season. I'm young and unencumbered so certainly if things changed I could find a way to supplement that income, but for now it is plenty to meet my financial goals. It's also worth mentioning that I am very flexible scaling my expenses-- in the off-season and even the on-season in quieter years I have enjoyed living out of my car with expenses of ~$500/mo, so I probably don't need a big emergency fund.

My question is: Seeing as I only get income a few months a year, how should I divide that money into standard living expenses, emergency fund, and un/taxable investments?

Here's my current plan:
-Keep $3000 emergency fund in cash
-Invest all income in index funds (as many tax-advantaged as possible)
-Withdraw expenses monthly from said funds

As my business expands, I need capital to cover new equipment and payroll buffer until our cash flow is established each year.  To put it into perspective, I got a loan for $50,000 this year. I'll be paying it off before the end of the month, and my total expenses relating to the loan will be ~$500. Compare that $500 expense to the opportunity cost of leaving $50k cash a savings account with a shitty APY for 8 months and it seems wiser to go the loan route.

Is it a reasonable plan to pay myself from index funds? Should I keep business capital in low-yielding secured investment or seek a bank loan and pay it back shortly after receiving it? Any other ideas on how to optimize?