There are many reasons that someone may have an inconsistent income, and it doesn’t necessarily indicate a problem. From freelancers to hourly wage earners, more people than ever are experiencing irregular income as the gig economy thrives post-COVID-19. The gig economy is characterized by individuals working many, short-term contracts and has increased by 15% from 2010 to 2019, according to a study by the ADP research institute.
As mentioned above, hourly wage earners may have an inconsistent income due to easily changing shifts and the ability to earn more for extra hours of work. In 2020, the U.S. Bureau of Labor Statistics found that “73.3 million workers age 16 and older in the United States were paid at hourly rates, representing 55.5% of all wage and salary workers.”
Budgeting with a variable income can be tricky, but here are some of our best tips and tricks for managing your money month to month.
Budget based on your lowest expected income
When you sit down to create a budget, you should base it on your lowest expected income. List what you know for sure you will make that month from known shifts or gigs. If your earnings increase, then you have some wiggle room to add that money to savings or treat yourself, which is much better than scrambling to cover necessary expenses because you over-evaluated your income.
Calculate what your average monthly income is
A fluctuation in your income can be confusing and hard to manage. However, chances are that your monthly earnings will have an average range, which will help you know what to expect each month. Here’s the best way to get started on this calculation:
- Add up the income from the past 12 months (or as long as you have had a variable income).
- Then divide it by the number of months that you took in the first step.
- The resulting number is your average income.
Once you know your average monthly income, you can compare that to the cost of your necessary expenses. Ideally, your monthly income will be slightly higher than the cost of utilities and other essentials.
Create an emergency fund
While having a safety net is valuable for everyone, those of you with an inconsistent income will benefit greatly. According to Bankrate, 51% of Americans have less than three months’ worth of money saved in case of an emergency. It is even more important for people with less expected sources of income to have something to fall back on because, while some months are great, others may be thinner. During tougher times, an emergency fund can make all the difference.
If you budget correctly, having an inconsistent income can be far less stressful. To learn more about managing your personal finances, reach out to The Federal Savings Bank today.
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