Variable Income: How to Manage It!
If you work a job where your paycheck fluctuates each pay period, then this month’s blog is for you. As a family who maintains a variable income, we are extra attentive with our monthly budget. This means being proactive about saving extra cash earned one week so you aren’t forced to live on rice and beans the next. My family used to overspend on extra pay weeks, and let me tell you, this lifestyle eventually catches up to you. Here are some practical tips my family and I use to make sure we are managing our income to maintain financial security.
Determine Your Average Income/Expenses
My Type A personality is always planning our budget a week in advance; however, this can be difficult to do when our paycheck totals fluctuate. To ensure we stay within our budget, I calculate what our average income/expenses typically are to get a rough idea of what our month will look like. I then use this to budget our income on the lower side and our expenses on the higher end. This allows us to save any extra earnings or put them toward a financial goal (i.e. paying off a loan, saving for a trip, etc.). When you begin implementing this budgeting approach, all of your needs are accounted for while still having plenty of room to tackle goals on weeks you have a higher income.
Bi-Weekly Check-In
Picking up overtime shifts, having to stay home with children, or just working a position with more hours one week and less the next all create a variable income. Managing our income becomes tricky when we earn less than what we expected on certain weeks. This is why I am a huge advocate for doing bi-weekly check-ins the days you get paid. This doesn’t mean sitting down for hours, crunching numbers, and checking every single line item in your budget, nor is this living paycheck to paycheck. When you live paycheck to paycheck, sustaining a normal life without the worry of when your next paycheck will hit your account is difficult. However, when you allow yourself time for a bi-weekly check-in, you are getting more involved with your money and can find peace of mind with your finances. Our lives consist of various things we care about and want to grow, so we must be constantly working towards those growth goals—including wealth!
Having a Reasonable Buffer
Some people like to create a zero-based budget, which is where your income minus your expenses equals zero; whereas, I like to have a buffer line item in my budget. It’s important to note neither option is right or wrong, as they are dependent on what works best for you and your lifestyle. To create a buffer in our budget, we must first list our expenses, wants, and needs, leaving us with some extra cash. What do we do with the extra cash?
Let’s say, after we paid all our expenses, there is $500 left in our budget. Since my family likes to have a $300 buffer, we would move $200 to our current financial goal and leave the $300 where it is. If a birthday comes up or gas is more expensive one week, it still keeps us on track with our financial goals without creating an under-budgeting problem. Whatever we don’t use in our buffer by the next time we get paid would roll over to the goal we are working towards.
Future Planning
Perhaps you work a job in the summer where you get paid a lot more than you do in the winter. This is where you really have to be proactive about saving for months of lower income or paying your bills in advance if you can.
My family went through a job crisis many years ago which halted our income completely. Instead of stressing about our monthly bills, we decided to use our savings to pay all we could six months in advance and put any extra cash we had into a budget for our monthly necessities. This helped us for the first six months to only focus on putting food on the table and buying gas for our car. Doing this made those months less stressful and honestly more enjoyable, knowing our family was taken care of, regardless of not having the regular income we once had. Additionally, during the months we were earning more income, we were able to put more money into a savings account, which was our main goal at the time.
If you want your income to work for you, especially during those low-earning months, you have to be proactive, disciplined, and plan your budget accordingly. If you don’t know where to start or what this may look like, I am happy to help through our KerberRose Wealth Management services. Remember, our goal is for you to win with your money, in any way that works for you. Reach out to us and begin saving for your dreams today!
About Alex
Alex is one of our financial wellness advocates on our Wealth Management team. She is a mom of four, and her passion is sharing her own personal finance journey from living paycheck to paycheck and drowning in debt to finding financial peace. Alex's unique experience has given her the ability to help families take control of their own personal finances - all while still enjoying what life has to offer.
Contact: alex.miller@kerberrose.com