We all love a steady paycheck. That’s why so many people continue working the 9 to 5 grind, even if they don’t like or enjoy their job. They enjoy receiving that steady, reliable, and wonderful paycheck every two weeks.
Admittedly, that is one nice thing about having a “traditional” job, you more than likely know how much money you’ll be earning each pay period, making budgeting your personal expenses easy.
The reliable, steady job may be the case for most of us, but there is an ever increasing group of individuals who receive seasonal income.
This can be a student who works only during the summer or a self-employed freelancer who doesn’t have a steady monthly income, but works at seasonal times of the year. And don’t forget commission based positions such as those in sales and retailers.
A steady paycheck is great, but how do you budget and save when your income fluctuates based on how many jobs you do or how much product you sell? You can budget for seasonal income and make a comfortable living. Here are some budgeting solutions for your seasonal income.
Start with regular monthly expenses.
Write down everything you spend money on each month. Start with the necessities such as your rent or house payment, utilities, loans and debt, groceries, etc. Then add what you spend on wants such as clothes, eating out, travel, and whatever else you’d like to spend money on. Be sure to note what payments are due monthly and if anything is due weekly. Once you have these expenses written down you can subtract your main expenses from your current income and see pretty clearly where you stand financially. If it’s been a lean month, or a lean season, you may need to alter your spending habits and cut a few of those “wants” from your budget. If you take care to look now at how your income fluctuates, you won’t be putting yourself back in the ramen-days of university.
Personally, my lean season tends to be in the summer when many of my clients are out of town or just need less of my services. I try to plan ahead for that as much as possible now that I know when my business and income will slow down seasonally.
Average your lowest monthly income.
If you have high swinging months, say you make nothing the first month then bring home several thousand dollars the next month, averaging all your income isn’t that helpful. By averaging your lower income months you can then have a baseline to keep your budget target. If your income doesn’t fluctuate like the above example, you can take all your income and divide it by twelve to get your monthly average for a year and base your budget around that.
When you have months that you earn more than average, save that extra money for the slower months during your lean season — don’t go splurge.
Set up a saving account for income taxes.
This tip definitely applies to the self-employed. Be sure to set aside a monthly amount for income taxes so when they come due, you aren’t in the red. Income taxes can be very expensive depending on the amount of income you earn while being self-employed.
Create a holding account.
This budgeting method is especially great for college students or graduate students who tend to work more during school breaks and less during the semesters when they are attending classes and studying. A holding account is where all your income is placed and then you pull a fixed monthly amount to live on. Don’t take more when you have a good month or two so you aren’t as tempted to splurge. Trust me, you’ll need that extra income later when things get tight and you are earning less during your school semesters…and who knows, you may need that cash for a new startup.
Set up an emergency fund.
An emergency fund is something everyone needs, not just the self-employed, seasonal workers, or commission based positions. By saving three to six months worth of expenses, you can keep yourself afloat during the dry spells and lean seasons when your income is lower. This also is great if an emergency pops up. This doesn’t have to all be saved at once but if you work towards the “rainy-day-fund” over a few months, you’ll definitely feel better and more security in your future finances.
Stick to your budget!
Sticking to your budget is probably the most important thing you can do if you have seasonal income. Stick to this budget even when you are raking in the cash during a busy season. By not overspending or splurging during the good months, you will have savings to carry you through the dry months. If you have a few good months in a row, don’t elevate your lifestyle only to have it become unsustainable when the slow season hits.
The biggest thing to remember — even if you’ve been told this before — is to not live above your means, which is critical to anyone’s budget no matter their income, be it seasonal or steady. Budget smartly, save up, and you’ll be able to create the illusion of a steady income even if you have seasonal income.