Starting Out: Frugal Living & Smart Saving
Regardless of how you’ve entered into a variable income, the first few months of it can cause a major adjustment to your budget. Even if you start off with a ton of money, you need to start thinking long term – starting by living frugally to build your nest egg. There are plenty of ways to go about this, which you can learn from Zing posts , but the first few months require cutting your normal costs to build up a solid bank account. Living frugally is smart in general, but for those living off of a variable income, it’s really about assessing your current spending patterns, and which habits will need to change.
To put it bluntly, if you’re the person who lives from paycheck to paycheck, then you’ll need to start focusing on saving – the paycheck-to-paycheck financial strategy is risky on a variable income. If you’re used to scheduling out your bills to fit your bi-weekly paychecks, you’ll have to adjust your tactics to fit with a monthly or sporadic income. Start working on a savings account, and build on it. The goal is to have a month’s worth of expenses (however much that is to you) built up in it for emergencies. If you’re starting with little or no savings, cutting costs with shopping and food is a good place to start saving your funds.
Living On a Variable Budget
Everyone’s variable income is different, especially for freelancers and commission workers, but the principles laid out in this article from You Need a Budget can put anyone on a variable income on the right track. You can read the in-depth explanation in the article, but here are the bullet points.
- Learn to live on last month’s income
- Budget for the future with your “now” dollars
- Create a “deferred income” category
The third point, and arguably the most important one, goes hand in hand with the smart-saving tips discussed earlier. It sounds like common sense, but it cannot be stressed enough: building and maintaining a savings account (“deferred income,” “emergency fund,” “shoebox full of money under your bed,” or whatever you want to call it) is essential to living on a variable budget. The intricacies of how much to save and when vary from person to person, but that’s one common feature everyone on a variable income should share.
Stay on Top of Your Finances
Living on a variable income requires you to constantly be in tune with your budget. For those of us who live in the bi-weekly paycheck, direct-deposit world, we tend to forget how hard it can be. If your income is not on a strict schedule, is handling monthly expenses through auto-pay billing the best idea for your lifestyle? If you have a light work month, which luxuries or expenses can you cut or pay last? How does anyone on a variable income accommodate for all the uncertainties this lifestyle can lead to?
Workable Wealth suggests making your budget as flexible as your income can be each month. Planning out your finances and savings is the big picture, but the details of your budget need to accommodate your lifestyle. Do you still want to catch four movies in theaters every month, despite your new income? Plan your budget to work with your lifestyle, and be willing to cut back if need be. Create a financial plan that helps you determine what your bills (utilities, cell phone, rent, etc.) cost regularly, and you’ll know what luxuries you can afford, and if you’re on track with your financial goals.
For our Zing readers that freelance, live off of retirement, or have any type of variable income – what tactics are working the best for you? Please comment below with anything that could help others entering a variable-income lifestyle.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.