by Stacy Francis, CFP®, CDFA
Recently, I received an email from one of my “Bounce Back Boot Camp” members who has difficulty planning a budget with a fluctuating income. I’ve found that uncertain incomes are a common occurrence and can make your wallet stretch beyond its means. There are so many jobs out there with incomes dependent on jobs completed and not salary-based which make preparing a budget a difficult, but an imperative tool to learn. Because monthly income fluctuates like it does, budgeting could be one of the best skills you may acquire toward your path to becoming financially independent and secure.
My friend recently the mistake of setting her savings goals on a fixed dollar amount per month or year. A more flexible method would have been for her to try saving a percentage of the earnings she had each month to allow more flexibility. Many advisors will recommend you save between 10% and 20% of your take home income and use 80% to 90% for living expenses. I would recommend you follow these guidelines. Aim to spend only 80% of your earnings on living expenses and save 20%. Because of uncertain income, choosing to save closer to 10% during the less lucrative months and 20% when you make the big bucks is a good idea.
If you have any outstanding bills that are overdue, then the beginning months may include 5% or 10% of your savings to contribute towards overdue bills. My husband’s co worker had overdue bills of $1200, and he took home about $10,000 this month- so I advised him to save about $1,000. 10% of the $1,000 is $100 he used to pay off his debt. Its efficient and it doesn’t set you back too much!
Depending on your personal situation and comfort level, you may decide to adjust these proportions to better suit your needs.