Coping with a fluctuating income

Whether it’s because you’re self-employed, because you work casually or because the business you work for has recently cut back your hours, many of us have to work out how to pay the bills (which don’t tend to vary) when our own income is going up and down. It can be a very stressful situation.

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How to cope with the fluctuations

While it is stating the obvious, it’s really important, if you earn a fluctuating income, that you put aside money in the “good” months to help cover your costs in the not-so-good months! Here are a few tips to make it a little bit easier.

  1. Pay yourself first. T might sound counter-intuitive, because getting paid is what it’s all about, but generally once the money comes in a reasonable proportion of it goes out again just as fast – to other people. So make a habit that, whenever you get paid, you put aside at least ten percent into a savings account that is separate to your everyday spending account. You can then use this money as a cash buffer during the weeks when nothing or very little comes in. Try to choose a savings account that pays a reasonable interest rate without charging exorbitant fees for the privilege.

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  1. Pay your tax. Particularly if you are self-employed, keep in mind that when you receive payment of an invoice, you may need to put aside tax! Make sure you know what your average tax rate is, and automatically put that amount aside from each invoiced you receive.
  2. Pay your “must pay” bills first. We all have costs – like rent, mortgage, insurances, petrol and electricity and phone bills – that we must pay. Then there are costs – such as eating out, new clothes and magazine subscriptions – that are not so compulsory. Get in the habit of pulling out any accounts that are falling due and pay them before you spend money on anything else.
  3. Be careful with credit. Personal loan interest rates and credit card interest rates are reasonably high (which reflects the lending risk). Don’t fall into the trap of using a credit card or personal loan to see you through the quiet months with the mindset that you’ll pay it back later on. Later on may never arrive!

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Having flexible work arrangements is a gift that the many people would envy. It does come with budgeting responsibiliti4es though. Some time spent in planning and administering your cash, and implementing a regular savings habit can help prevent that gift from turning into a burden.

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