Do you have an irregular income? Does your income constantly vary?
It’s time for another reader Q&A session. Today we’re going to discuss the ever popular topic of managing money when you’re a student/freelancer/entrepreneur with an irregular income.
Your fellow Studenomics’ cartel member, Jessica, emailed me with the following question:
“I would love to see more posts on how to invest/save with the irregular income that comes from being a university student. For example, I have two years left in a five year degree and at this point I know that (barring something catastrophic like not having a job for the next two years) I will be graduating with no debt and some money left over. However, the money that I make is… unpredictable. One semester I have a TA job, the next I tutor. Week to week, month to month, and year to year my income is constantly changing. Right now my financial plan is a hodge podge. I’m sure there are other students in a similar situation and I would love to hear some ideas on how to deal with the unevenness when it comes to saving or investing.”
Good question. This irregular income may not end after college. You could pursue a living as a freelancer or you could work on starting up your own business. Either way, this is an issue that’s also been affecting me lately. My income is some what predictable, but it varies from month to month. Let’s look at some super-tactical ways to deal with an irregular income:
The first step is to figure out how much money you need every single month just to survive.
I don’t believe in arbitrary percentage figures, so I won’t throw any out here today. You need to figure out all of your fixed and variable costs. You need to calculate how much money you’ll roughly need every month for the following expenses:
- Subscriptions- cell phone, gym, online stuff, etc.
It’s important that you include everything in this number. You don’t want to budget for $700 and then get slammed with a $100 phone bill that you don’t have the money for. This could lead to credit card debt or a minor destruction to you financial system.
Setup an emergency fund/money-to-survive fund. Once you’ve figured this number out you should strive to try to save up 3 months worth of these expenses. I know that some of you feel that the emergency fund topic is rather overrated or a bit boring. Let’s just call it your survival fund for today’s post. This is the money that you’ll need to survive when your income is next to zero and you’re trying to figure out what you’ll eat for lunch.
Invest/put aside the excess. If you realize that your consistently earning/saving plenty more than you need to survive, you could put this money aside or invest it (online savings account or securities if you can handle the risk).
Don’t spoil yourself until you have money saved up. The biggest issue here is that it’s tempting to go all out those months where the money is coming in. It’s really tempting to buy a new outfit, get bottle service at the club, or go away for Spring Break. Why does this happen? For two reasons:
- We view our money on a weekly basis. Instead of looking at the bigger picture/annual figure, we’re looking at the week-to-week. It’s difficult to fathom that you may be broke a few months down the road when you have a few thousand dollars in your bank account at this very moment.
- The lean months feel like torture. Those weeks or months where money is really tight feel like they’re never going to end. Then finally we see our bank account pile up cash. The euphoria kicks in and we feel like we deserve to spend this excess cash because we went through so many poor periods. This is why many of us have difficulties with managing an irregular income at first.
When you start to apply the tactics for this article, you’ll view your overall financial system from the “bigger picture” mindset, as opposed to the “right now” mindset. This is when you’ll get to the point where you’ll no longer have issues with managing your irregular income.
Was this article helpful? How do you guys manage your money with an irregular income? Any more tips out there?