More people used to have “9-to-5s,” or full-time jobs with steady pay and consistent hours, than they do now. But we’ve seen the rise of the gig economy—a labor market full of freelance and short-term work as opposed to full-time positions and careers. Workers increasingly find themselves piecing together work from different sources rather than working for one company consistently over the long term. And while there are certainly upsides to added flexibility, many of these jobs lack benefits and leave people living on variable pay.
Pay can be variable for a variety of reasons. Maybe your work is seasonal. Perhaps you freelance, depending on unpredictable contracts—making your paychecks feast or famine depending on the timing. If you work as an independent contractor, your compensation level might vary throughout the year depending on which project you’re working on at any given time.
It’s more challenging to budget and plan for a healthy financial future when your pay is variable. But the good news is that it’s totally possible! Consider these strategies for doing so.
Creating a Flexible Budget
When your pay fluctuates, it’s tough to plan too far in advance. But it’s still important to create a spending plan to the best of your ability. Start by simply breaking down expenses into “fixed” or “variable.” Some costs you already know will be recurring: Rent or mortgage, utilities, basic groceries, auto loans, long-term prescriptions, etc. Totaling up your fixed costs will help you determine how much you absolutely need to make each month to stay afloat.
Then, there are the variable costs. These pesky costs tend to crop up based on circumstances. While basic groceries can be a relatively fixed cost, eating out may not be—when your friend invites you to a birthday dinner, it’s a tough invite to turn down, so you go. Prescriptions are fixed, but a trip to urgent care is variable. Auto loans are fixed, but your car needing a tow is variable. And life does have a way of throwing unpredictable costs at us, so you’ll have to leave some wiggle room when you’re tabulating how much you need to make each month to survive.
Understanding your fixed and variable costs will help you determine how to structure your workload to stay current on bills. Hopefully, this will help minimize or prevent debt accrual.
Paying Down Debts
If you have racked up any amount of debt, it’s in your best interest to pay it as soon as possible. Now, doing so without a consistent stream of income can seem daunting. But the interest you’ll pay over time on holding debt will only weigh you down more.
If you believe you can pay off your debts within a few months or years by structuring your spending, do-it-yourself debt repayment or credit counseling could work for you. The former involves tightening your purse strings and using the savings to strategically pay off debts one by one. The latter involves working with an accredited professional to develop a monthly plan for debt repayment—possibly involving lowered interest rates.
If there’s little to no chance of you paying off your debts within a few years, a more drastic solution may be in order. Debt settlement is one option. It’ll hurt your credit score because it often requires you cease paying your creditors, but there’s a long game: Saving up enough through regular deposits into a designated account to negotiate with creditors, aiming to reach a lesser settlement than what you originally owed. If you read through Freedom Debt Relief reviews, you’ll notice enrollees talk about having significant delinquent debt, as in $10,000 or more. The key is matching your debt solution to the amount and kind of debts you owe.
Preparing for “Slim” Months
Everyone needs an emergency fund. But when your pay fluctuates, you really need one. Why? Because tucking away money when things are flush will help you survive paltry months without piling on debt. Saving six months’ worth of living expenses is ideal. And when you’re in the midst of a high-earning month, replenish what you’ve taken from your emergency fund during slimmer months. You’ll thank yourself down the line.
Yes, you can plan, budget and manage debt when your pay is variable. It’s all about getting creative with the resources you do have when you have them.