An Unpredictable Income
Posted by Gail | Filed under Budgets
I get loads of letters every week from people who do not have a consistent income and can’t figure out how to manage the money they do get. Whether they are self-employed, working on a contract, or earning some considerable part of their income in bonuses or commission, they don’t have a steady stream of cash they can count on from one month to the next. Or their income fluctuates dramatically from one time of year to another.
The economic downturn has also brought a slew of players to the Unpredicatable Income arena: with unemployment up and hours of work and paycheques being cut back all over the place, even people who thought they had a steady income are having to deal with income volatility.
According to the U.S. Department of Labor, 7.6 million people have lost their jobs, and the unemployment rate has doubled, to 9.8 percent in the past two years. Add on the 2.2 million people who are out of work but not counted because they didn’t search for a job in the last four weeks, and the 9 million workers classified as “involuntary part-time” who want a full-time position but can’t find one and the picture is pretty bleak.
In Canada, September brought the first .3% decline in unemployment since the fall of 2008, so our unemployment rate sits at 8.4%. Despite September’s gains, full-time employment has fallen by 395,000 or 2.8% since the employment peak in October 2008.
And now we come to a bible story to help illustrate how people who deal with unpredictable incomes must operate. Let’s turn to the story of Joseph in Egypt. Anyone remember this? Joseph had a dream that lead him to counsel Pharaoh to stock up on grain because seven years of famine were about to hit. Smart Pharaoh took Joseph’s advice. Joseph became the man of the hour.
I’m a Joseph. When times are good, I choose an amount I can live comfortably on, and I stash away the rest of the money. I know full well that a potential famine is around the corner, and I’d rather live simply today and eat tomorrow that gobble up consumables when I’m feeling flush only to whine and complain when the money tap runs dry.
Perhaps it is because I have been self-employed most of my life, and have watched contracts dry up and blow away that I’m so easily resolved to not spending all my money at once. Or perhaps it is because I’m a sensible girl and know that for every up in the economic cycle there is an inevitable down. The reality is that most of us must now get used to income volatility being the new norm and change the way we manage our money.
If you’ve been into conspicuous consumption this may come as quite the shock for you. And if you’re walking around with an albatross of debt across your shoulders, you may wonder how you’ll survive. If the letters I’m receiving are any indication of the desperation being felt in general, we’re not done with this mess yet. As those people who cannot cope default on their debt, that’ll impact not only the dumb lenders who extended too much credit, but the economy as a whole as more and more people have less and less money to bouy up our “consumer driven” economy.
But back to the question at hand: How do you deal with a volatile income.
1. You make a tiered budget that lets you cover your most basic needs in the very dry months, and live a little larger when times are better.
2. You make sure you’re socking away as much as you can when times are good so that you have the biggest fattest emergency fund you can for when times are less good.
3. You think about what you’re buying. Just because you have some money in the bank shouldn’t negate your need to be a sensible and thoughtful shopper. Wasting money on crap is never a good idea, so it’s time to eshew stuff for stuff’s sake, and focus on what’s really going to add to your life.
4. You commit to never again spending money on credit. It’s a trap that springs, cutting off your economic blood supply, when times get tough. Debt is dumb.
6. You do whatever it takes to make the money you need to keep your family afloat. Whether it’s chopping wood, cleaning houses, or walking the dogs of the dopes who have yet to come to their senses, you’ll do as many jobs as it takes to hold your life together.
I’m a sensible, no-debt girl, so I find lean times less stressful to manage. When I’m making good money, I work hard at managing my expectations so that a bumper crop doesn’t leave me feeling richer than I actually am. If I want to lay down new floors in my house, take a vacation with the kids, or buy myself something snappy, I make a plan as oppose to acting on impulse. While it can be pretty tough to stay off the consumerism treadmill, I find that managing my thoughts about how much money I do or don’t have is just as important as managing the money itself.