By Sarah Hall, Consumer Education Services Inc.
If you’re never quite sure how much money you’ll pull in from week to week, you have plenty of company. Learning to budget without a steady paycheck is a challenge that a lot of people experience.
Thanks to a large number of underemployed people, who often are working part-time at hourly jobs, and the booming freelance or “gig” economy, a growing number of American workers aren’t quite sure just how much money they’ll earn every month.
Consider these numbers
• More than half — nearly 59 percent of American workers — are paid at hourly rates, according to the U.S. Bureau of Labor Statistics.
• About 17 percent of the workforce face unstable work shift schedules, according to the Economic Policy Institute.
• More than 30 percent of Americans say they experience significant spikes and dips in their incomes, the institute reported.
• And, for the 74 percent of hourly workers who report having fluctuations in their work schedules in the last month, their hours varied by 50 percent of their usual work hours, on average, according to the report.
Not knowing exactly how much you’ll earn on a regular basis can have a serious impact on your wallet. And, for those never sure how big their paycheck will be, it can seem almost impossible to live and work from a budget. But, believe it or not, it is possible.
Here are three tips for learning how to budget without a steady paycheck
Be ready for the worst
Evaluate your income over the past 12 months. There might have been a few high-earning periods; most likely, some low-earning months; and, probably, some average ones.
When you’re not guaranteed the same amount in your paycheck each month, you’ll want to focus on those lowest-earning months.
As you build a budget, base the money that you have available for your expenses on the pay you received during those months when your take-home earnings were at their slimmest. When you base your budget on those lowest-earning periods, it’s unlikely that you’ll spend more than you can afford on a monthly basis.
Be prepared for the best
Of course, when you plan for the worst, there will always be those months when you earn more than your budget requires. As you look at your budget, prioritize your spending and needs.
Of course, each month, you’ll need to cover basic expenses — rent or mortgage, transportation costs, food, utilities and health care premiums, among others.
When you pull in more cash than usual, you’ll want to start looking at funding other major priorities. Those include paying off debt, socking more money away for retirement, saving for a college education or adding to a fund for a down payment for a new home.
Don’t forget about those rainy days
Of course, a critical item on any list of priority needs is the emergency fund. For those who budget without a steady paycheck and don’t always have assurances on how much they’ll earn each month, these funds can be especially important.
The fund should only be used to cover unexpected expenses, including car repairs, medical bills and daily expenses if you find yourself out of work. Your emergency fund should cover about three to six months of your expenses if the worst ever happened.
With these steps, planning and living off of a budget without a steady paycheck is possible. It requires some planning — and the ability to stick to those plans.
The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!