Teachers work in the classroom roughly 9 months out of every year, yet they need for their money to last all 12 months. Contract employees can have work today but not tomorrow. Business owners rely on a steady stream of potentially fickle customers for their income.
All of these professions have one thing in common – they all live on a variable income. Rather than a steady, reliable weekly, bi-weekly, semi-monthly or monthly paycheck, workers earning a variable income do not always know when or how much they’ll be paid.
Living on a variable income can be extremely stressful but it doesn’t have to be. Organization and discipline are key. Here are some tips for how to manage your money when your income fluctuates..
Avoid Feast or Famine
According to Kelsa Dickey, founder of Fiscal Fitness Phoenix Financial Coaching, the first thing to do is to avoid the “feast” and “famine” emotional reaction to your income. When your commission check comes in it is NOT time to go crazy and spend too much on things you might not need. That money needs to last through the times when you’re not earning!!
Know your Budget in Detail
It’s extremely important to get your expenses down in as great of detail as possible, making sure to account for absolutely everything you possibly can. It may take some time, but it’s vital to know what your spending needs are so you know what income you’ll need to cover it.
Once you have your budget dialed in, you need to get the mechanism for paying your bills set up. Kelsa recommends you have 2 checking accounts.
Set up your Accounts
The first checking account should be used as a deposit account for all household income. You will use the funds in this account to pay yourself a set income. In essence, you’re creating the steady paycheck your job doesn’t provide for you. The “paycheck” is deposited into a second checking account which you will use to pay your expenses. You can pay yourself at whatever interval you choose (weekly, bi-weekly, etc.) but be sure to settle on a schedule and stay consistent.
The funds remaining in the first account should be left as your reserve. In time you’ll be able to look at the balance in that account and know, based on your budget, exactly how long that money will last.
More Tips for Living on a Variable Income
Some other tips from Kelsa for living on a variable income include:
- When estimating your income, estimate low. If your pay comes through higher than expected, you’re golden!
- Expect your pay to come through later rather than sooner.
- Set a priority list so you know exactly where your money is going.
As I said earlier, it takes a good bit of discipline and organization to live on a variable income. It is NOT impossible to live comfortably and stress free even if your income is not steady-you just need a system.
If you have a system for living on a variable income please share your ideas! Some of my other readers may benefit from your experience.
Be well and God Bless – until we meet again…