5 Real Ways To Save Money When Your Income Is Unpredictable
A growing number of Americans, particularly younger people, are facing the reality of irregular income. They may have multiple side hustles, work as freelancers or be paid hourly. Regardless, the result is often insecurity. A reported 48% of Gen Zers and 46% of millennials said they lack financial security, according to Deloitte.
Even if it feels impossible, saving money when your income is unpredictable is achievable. Here are five ways to do it.
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1. Give Every Dollar a Job
When your income is irregular, it can feel like money disappears as soon as it hits your bank account. Having a plan in place for every dollar of your income can help you stay organized and see where your money is going.
“The first thing to do is to create a ‘fake’ paycheck that is the same amount every single month,” said Annie Hanson, an accredited financial counselor and founder of Mindfully Money.
You can then put that "paycheck" into a separate bank account. Doing this helps avoid errantly spending money that’s obligated to something else. Many banks and finance apps let users create buckets to simplify money management, so it doesn’t have to be overly complicated.
2. Save a Percentage of Every Payment
Saving money is a personal experience. You must customize it to your situation to achieve goals. For instance, setting aside a specific dollar amount from each paycheck is a fantastic idea, but it’s problematic on an irregular income.
That doesn't mean you can't save money, though. Rather than saving a specific dollar amount, consider saving a set percentage of each payment you receive. You can save 5%, 10% or any other amount you’re comfortable with.
If you receive $500 and commit to saving 10%, you'll save $50. Receive $200? You can save $20.
3. Build a Chaos Fund
“Having extra money in your account as a buffer or having a larger emergency fund is especially important when your income is unpredictable,” Hanson said.
Traditional guidance is to save at least three months of living expenses, if not six or more, in an emergency fund. But saving that amount can be difficult, especially when income is erratic. Starting with a smaller goal turns the overwhelming feeling into something achievable and creates momentum.
Start with a goal to save $250 or $500, and then use that as a jumping-off point for future savings. The goal is to create a financial cushion that gives you breathing room in time of dire need, not perfection.
4. Leverage High-Income Months for a Cheat Code
High-income months are exciting when your income is unpredictable. Wanting to spend those extra earnings is understandable, but it can set you back in leaner months.
As R.J. Weiss, certified financial planner (CFP) and founder of The Ways to Wealth, put it, "A few good months in a row, and you start to feel like you're on a new baseline of income and spend like it."
Weiss suggested establishing a baseline from your historical income instead.
“Look back 12 months, find your worst month and plan your monthly expenses off that number."
Then, rather than spending extra earnings, apply them toward next month’s rent, upcoming bills, growing your savings or eliminating debt. The aim is to get at least one month ahead, as that reduces stress and creates freedom.
Don’t be afraid to spend some of the overage on something fun. Life is meant to be enjoyed; just make sure you have a plan, so you don’t go overboard.
5. Cut Fixed Costs
Fixed costs are a part of any budget. They include things like rent, utilities or subscriptions. The 50/30/20 budgeting rule — where 50% of your income goes toward fixed costs, 30% toward wants and 20% toward savings — works for some, but not for everyone.
Personalizing your budget to your situation is essential, and reducing your fixed expenses can help optimize your budget. You don’t have to live like a miser, but keeping fixed costs in check can help keep you afloat in lean months.
According to Weiss, “The people who live successfully on irregular income keep their fixed costs low, and when times get hard, they know exactly what to cut and do it fast."
Saving money on an irregular income is challenging, but not impossible. Being strategic helps you meet your obligations while also having some fun money.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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