How to Handle a Variable Income

by Jessica Sommerfield · 0 comments

Fixed salaries and regular work hours provide a stabilizing influence on personal finances. You know you’ll be making said amount of money per month, so you can plan that amount into your budget. But what if you’re income isn’t predictable,  you experience yearly layoffs, or have a job that’s strictly seasonal?  An inconsistency in cash flow makes it difficult to plan ahead or deal with unexpected expenses.  There are an increasing number of employment situations that come with the ebb and flow of a fluctuating income. Here are a few you might identify with:

  • Contract work.  In this instance, your income is based on piece work or individual contract jobs. You might be contracted to provide a particular service as needed to a larger corporation, or you might be in business for yourself. Either way, the amount of work you get from month to month can vary tremendously based on the seasonal or economical need for your services. Unfortunately, independent contractors tend to suffer the most from downturns in the economy because their work tends to represent discretionary spending at a time when consumers are forced to tighten their belts.  Of course, fields that cater to core necessities will feel less of an effect in a poor economy.
  • Seasonal work and planned layoffs.  These types of jobs are usually based on agriculture or are performed in the great outdoors, where growing seasons and weather changes drastically limit or cut off productivity. This is the type of variable income that is easiest to plan for, because the layoffs or end of the work season are expected and regular. It still means you’ll have to save income for your periods of unemployment.
  • Part time work. Part time workers often have a fluctuation in work hours that increases when business is good and decreases when business is slow, another factor that can’t always be predicted. You might have been dropped to part time without a choice, or been unable to find full time work.

Whichever or these (and other) variable income situations you find yourself in, there are ways you can plan your finances so as to be prepared in an emergency as well as stay afloat through the highs and lows. Here are some basis tips.

  1. Estimate low on your income. The best way to budget when you know your income varies is to plan for the lowest level of income you might receive.  This way, you are not overestimating your income and will know you can afford your core necessities no matter what. If that’s not enough to get by with the basics, you may need to find another income source.
  2. Estimate high on your expenses. On the other hand, you should always expect to have the maximum amount of expenses. If you any non-fixed or occasional expenses, factor them in as an average each month instead of being surprised when you  face a large bill out of the blue.  If your utility or other usage-based bills fluctuate, budget them at their highest by looking at previous years’ bills (this is why it’s also important to keep at least a year’s worth of payment receipts).
  3. Try to anticipate fluctuations in your income as much as possible.  Since you know your income will fluctuate, try to determine when and how much.  This is a practice that will take time, experience, and looking back at pay stubs, but it will be well worth the reward of more stable finances and accurate budgeting.
  4. Save as much as possible when the cash is flowing. There won’t always be a way to know when your contract work will decline or increase, so save up for a rainy day. Live frugally even when cash is flowing freely, and you’ll be more comfortable when things get tight. Set aside regular amounts, regardless, into a savings account that yields healthy interest.

The changing landscape of the economy and job market in recent years means that many of us will need to rethink the assumption that our incomes will always be the same, or are here to stay. When this happens, having a game plan for how to handle a fluctuating income will mean a greater degree of financial stability, less stress, and fewer reasons to go into debt.

Bonus Tip:

Another way to save on your monthly Internet and TV costs is to find a current ATT U-Verse coupon code or at least a promotion to knock down your home service bill.

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