How To Manage Your Money If You Have Unpredictable Income, According to Experts

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Compared to their counterparts in 1099 land, W-2 earners have an easy go of it at tax time — but April isn’t the only month when it pays to have consistent income. When the same amount of money arrives at the same time every pay period, budgeting, planning and saving are a whole lot simpler.

But household money management gets a whole lot more complicated for freelancers, gig workers, entrepreneurs, seasonal workers and anyone else with choppy income that arrives in peaks and valleys.

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While managing money is more of a challenge when income is unpredictable, it’s no less important. GOBankingRates asked the experts to share their best tips for getting it right.

Standard Emergency Fund Advice Is for W-2 People

You’ve probably heard the experts suggest that you save a quarter of a year’s worth of expenses for an emergency fund. They were talking to people who earn regular checks.

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“People with extremely stable incomes and expenses can get away with only keeping one to three months’ living expenses in their emergency fund,” said G. Brian Davis, founder of SparkRental, whose clients learn to manage inconsistent pay while replacing their salaries with passive rental income. “But when you have irregular income or expenses, you need to keep more in reserve — think six to 12 months’ living expenses. You live with more uncertainty, so you need deeper reserves.”

You’re probably thinking that, with inflation tearing through currency at a rate of 7.9%, the last thing you want to do is put a year’s worth of cash on a starvation diet of 0.06% interest in a savings account — if you were able to rustle up a year’s worth of savings in the first place, that is.

The good news: You don’t have to.

“Not all of that money has to be kept in cash,” Davis said. “I keep my emergency fund in several layers of defense, which includes cash at the first layer, but also several unused credit cards that I can turn to in a pinch, and several low-volatility investments that I can liquidate fast.”

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For Saving, Pick a Realistic Percentage and Stick With It

Danny Ray, founder of InsuranceForBurial.com, has worked in sales for 30 years. He knows a thing or two about the rigors of trying to save money when money comes in haphazardly.

“You can’t be in a business that fluctuates more,” he said.

Income might go up and down; but, as Ray points out, fixed percentages never change — and finding one you can reasonably stick with is the key to saving consistently on an unpredictable income. For him, the magic number is 10%.

“That means putting away a dime for every dollar you make and a little bit more if capable,” Ray said.

Give Every Dollar a Purpose With a Zero-Sum Budget

Many people with unsteady incomes rely on a strategy that dedicates every dollar earned to a specific expense. It’s called zero-sum budgeting.

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“This can help you avoid overspending or getting into debt,” said Brian Bram, founder of Home Gym Strength. “To create a zero-sum budget, start by listing all of your regular expenses, such as rent, utilities, food and transportation. Then, add up your total monthly income and subtract your expenses from this number. The remaining amount is what you can use for discretionary spending or savings. Be sure to revisit your budget regularly and adjust it as needed to ensure that it stays accurate.”

Let the Lean Months Serve as the Baseline

When your income has ups and downs, plan your budgeting, saving and spending based on the downs — and maintain that lifestyle even during times of plenty.

“Variable-income earners need to live like a pauper as much as possible, building a manageable budget based on the cash they earn in low-income months,” said Cliff Auerswald, president of All Reverse Mortgage. “You’ll live comfortably when money is tight, and you can save and invest your extra income more easily when you start earning more again.”

Rethink Your Relationship With Your Savings Account

Emergency savings are to be touched only in case of emergencies, of course, but people tend to think of savings, in general, as a fund for the future that you grow over time. That level of simplicity is a luxury for people with steady checks. When money comes in waves, however, your savings becomes an active part of your household budget — you contribute to it when you’re up and draw from it when you’re down.

“If you have income that fluctuates monthly, perceive your savings account as a flexible tool you can utilize when needed,” said Tony Lopez of Verus Financial Group. “For example, if you have a great month and earn more money than usual, add the surplus to your savings account rather than spending it. For the months you make less than average, you can dip into your flexible savings account.”

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