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Posted by: Charles P Myrick CPA Posted on: Oct 07 2021 Posted in: personal finance, saving and budgeting

Income Volatility: How to Save In Uncertain Times

We recently posted a New York Times article "Does Personal Finance Still Work in Our Changing Economy?" on our Facebook page. It opened with references to Income Volatility, an economic situation that many Americans find themselves in today. If irregular employment, inconsistent work hours, and unpredictable income are the new normal in your life, does it mean that you should give up on savings and retirement planning?

Even with an apparent shortage of workers since businesses have largely reopened in 2021, many American workers still work variable schedules that aren't what conventional money-talk says we need in order to build a strong financial base and make plans for the future. But we think there are smart ways to manage through uncertainty, even if you are experiencing income volatility at the present time.

What Income Volatility Looks Like

Many adult Americans do not work a full-time, 40-hours-a-week job with a set or consistent paycheck amount. Income volatility means that workers cannot count on specific income amounts throughout weeks, months, or even years. This situation is generally the case for: 

  • Gig Workers – Gig workers perform temporary service for specific events or commissions for clients who contract them for a prescribed amount of time or service. There are usually no benefits. They are self-employed and may turn down work. These workers may include performers, caterers, writers, masseuses, personal trainers, coaches, consultants, event planners, truck drivers, artists...and more. 
  • Sales Positions – Working for commissions as a salesperson in many industries may also create a feast-or-famine earning experience. Along with lucky opportunities and hard work, factors that boost or depress the economy can determine high or low sales numbers, leading to fluctuating pay.  
  • Tip Workers – Workers with positions as restaurant servers, bartenders, valets, or other types of service positions that rely on tips may experience wild shifts of income from day-to-day. 
  • Seasonal Workers – Some industries will hire extra workers for specific help during seasonal events. These industries include farming, retail sales, event and entertainment venues, manufacturing, tax preparers, and call centers. 
  • Hourly Part-time Employees – Some workers who desire full-time hours and a regular schedule must settle for fewer hours whenever their employer schedules them. They work on demand, getting schedules at the last minute. They can experience a feast-or-famine payment schedule, depending on the needs of the job.

Effects of Income Volatility

This condition makes it difficult to plan a life schedule for individuals and families, but it can also make it challenging to structure a budget, savings, or payment plan, which includes debt repayment, or even how to afford normal daily expenses and essentials.     

Build Savings Without a Set or Stable Income 

One of the best strategies mentioned in the NYT article involves a change in thinking about savings. We always advise clients to budget for savings with specific goals in mind. However, for those with income volatility, it’s more important to make efforts to save regularly, rather than as a percentage of an unknown total income amount. 

The article emphasizes developing a habit of savings as opposed to creating an objective based on a set amount. Determine to save a minimum amount for each week or month. You can and should always increase the amount when your income allows. You can use the saved income for specific expenses or retirement when it becomes strategically important or available to do so.

Myrick CPA recognizes that each client has individual resources, needs, and capabilities. We offer solutions and services that make it possible for you to reach your financial goals. Schedule a free consultation appointment with one of our professionals today.