How I save money on an inconsistent income
Just a few years ago, I'd rely on $1400 to hit my bank account every fortnight - and it did, each and every fortnight without fail. Even then, my income regularly fluctuated because I volunteered for so much overtime and, twice a year, received a performance bonus - but it was positively inconsistent in that I could always rely on at least that amount or more. It was blissfully easy to budget.
Fast forward to 2019, and I'm sure those of you who are freelancers, self-employed, contractors, or run a side business can relate to earning a wildly inconsistent income. It started in 2018, when I had six sources of income, one of them being a part-time job that would give me 21 hours one week, 4 hours the next; another being photography, where one month I'd shoot two events and others where I'd shoot none.
Here's a snapshot of my income now:
I've taken a hiatus from photography;
I still handmake and sell scented soy candles, though I don't advertise - so 99% of my candles are made for friends who ask for them personally and not via my Etsy shop;
I'm working full-time and work the same number of hours every week, but being on wages rather than a salary means my pay occasionally increases or decreases in cases of sick leave, annual leave, or public holidays;
I still have a casual/part-time job on the side;
My only source of consistent income - hallelujah! - is my rental income, which is, thankfully, always the same.
I also get paid:
Weekly from my day job;
Weekly from one source of rental income,
Fortnightly from the other;
Fortnightly from my part-time job
Every once in a while if a friend requests candles (I'm actually making candles for two friends' weddings at the moment - exciting stuff!)
So how on earth do I budget and save money when my income is never the same? For example, it's not realistic to set a goal of saving $200 every week if during the course of a month, you earn $1000, then $400, then $300, then $800.
But, for the past couple of months, I've successfully saved a considerable amount for building my nest egg, paying off debts, and investing in my future self through a few simple habits!
Pay yourself first
This is a personal finance rule I've heard countless times when it comes to building wealth, but now I get why it's so important. If your income is not consistent, it means you have to be. What it means for me personally is that I never have to worry that I'm not going to be able to save this particular week or fortnight because I've taken care of that worry straight away by paying myself first. Now when I get paid, it's the very first thing I do before anything else - even if I have bills to pay, new clothes to buy, a new book I really want - I always put money into savings & financial goals first. It's amazing the effect it has on my peace of mind.
"But what if I pay myself first then don't have enough to pay for everything else?"
1. 80/20'ing your finances really helps, and ensures that never happens. More on that later, or you can check out my blog post How to Live on 80% of Your Income.
2. There is always something you can do about your bill payments if, in a worst-case-scenario situation, you can't pay them on time. For example, companies can often offer extensions and waive late payment fees if you ask. It makes a difference if you are honest and let them know beforehand, because more often than not there are options available - I can say that having worked in customer service in insurance, banking and tax! (On that note.. Even our national tax department offers grace periods and instalment arrangement plans on debts; if they can, everyone else can too. So don't worry!)
Loosen up on your budget - save 20% instead
(Or: instead of using a dollar amount, use a percentage)
I used to write a budget for every week or fortnight, and it'd only work out half the time. Why? Because my income was inconsistent, so along with not having had the discipline of paying myself first, I often simply couldn't stick to my savings goal. But recently, I've adopted a new, life-changing habit. Instead of treating my budget like an absolute, I simply save 20% of whatever I earn.
It is so effortless. If I receive $600, I put $120 into savings. If I receive $1000, I put $200 into savings. If I receive $542, I put $54.20 into savings and $54.20 towards my credit card because it requires minimal effort to work out 10% off the top of your head. Now that I always save 20% of whatever income I earn, I always have peace of mind! Even if I overspend on brunch that weekend or treat myself to too many new books, I know that my savings has already been taken care of. It's that simple.
Always being able to save at least 20% is made possible by having first 80/20'ed my income. It's based on the 50/30/20 budgeting rule, where 50% of your income should go to needs, or fixed expenses; 30% of your income to wants, or flexible expenses; and 20% to savings and financial goals.
Note: The 80/20 rule is a famous rule that also applies to your lifestyle choices and time management! I consider it one of the best things I've ever done for my finances. :)
Underestimate your income, overestimate your expenses
The habit of consistently saving 20% has changed my life, but I still write an approximate weekly budget that I stick to more successfully than ever. It's coupled with another consistent habit: rounding down all of my expected income, and rounding up all of my expected expenses. For example:
Income
$602.61
$558.00
$202.00
Expenses
$54.00
$63.00
$76.00
becomes
Income
$600.00
$550.00
$200.00
Expenses
$60.00
$70.00
$80.00
I know this may be obvious and self-explanatory, but it makes a difference and has very often resulted in a surplus, not a deficit. And who doesn't want extra leftover money?
I hope you've found today's blog helpful and found some inspiration if you're in the same boat! Learning how to save with an inconsistent income has given me more peace of mind around my financial well-being - I hope it does the same for you too.
