It’s time to flashback to this post from 2013 about how to plan for income that varies or is seasonal. Read on for 4 tips to thrive.
One of the most difficult challenges for families with fluctuating income is how to pay all their bills during the lean months. Income may vary due to self-employment, earning commissions or tips, or working a seasonal job. Without a plan, many people often turn to credit cards to supplement their income, which only makes things worse since it often leads to debt/another monthly payment.
To avoid new debt and live well on fluctuating income, it pays to take the time to create a realistic spending and savings plan based on actual earnings. The following steps can help you get there…and may give you a sense of financial stability you find priceless!
1) Figure out how much money you earn
Look at your income over the past several months to find the average. For example, if you work seasonally, add up all your earnings plus your unemployment benefits over a full year. Then, divide by 12 to find your average monthly income. This is what you should be living on year-round, whether money is trickling or pouring in.
2) Create a household budget or spending plan
Add up all your monthly expenses including housing, transportation, food, and medical costs. Think about other expenses that come up throughout the year like insurance premiums, gifts, and real estate taxes. Divide those costs by 12 to find the monthly equivalents, and add these figures to your household budget. Then save these amounts each month so you can pay the bills in full when they are due.
If you don’t know all your expenses or how much they cost, you have two options. First, you can track your spending going forward. Do so for at least 2 months to get a good idea of costs. Jot down every item you buy in a notebook, create a computer spreadsheet, or download an app to your smart phone.
Your second option is to reconstruct expenses by reviewing bank statements if you pay bills by debit card, writing checks, or through automatic withdrawals from your accounts.
3) Establish two savings accounts: 1 for shortfalls and 1 for emergencies
Shortfall savings will supplement your income during the months where income is less. When you earn more than your monthly average, save 2/3 of the extra and put it in this account instead of spending it on something you want (as opposed to need). You’ll be glad you did when you need to pay your heat bill next winter.
Put the last 1/3 in the emergency account. The idea is to be prepared for life’s rainy days. Having emergency savings will prevent building new debts from using credit when things go wrong. Then, use windfalls like tax refunds to boost both accounts.
4) Reduce spending/Increase income
When you still don’t have enough money to cover all the bills, you may need more extreme action. First, reduce spending by cutting expenses that are wants rather than needs. Examples of needs are food, housing, transportation, clothing, and medical care. If you don’t need it to survive, it’s a want.
Then, look at ways to reduce your needs. For example, maybe you can carpool to work or use mass transit to save on gas and parking costs.
If budget cuts alone don’t do it, you will likely need to increase income for more cash flow. Can you get a second job that fits in your schedule or find a better paying full-time job? Be sure to add in any new income to your existing monthly average. Check out ideas to increase income for more suggestions.
If getting rid of credit cards is what you really need to make the numbers work, LSS can help you create a plan to conquer your debt. Call us at 888.577.2227 or GET STARTED ONLINE with your free online financial counseling session. It’s easy and confidential. Why wait when you can get started on your path to becoming debt-free today?