3 Simple Budgeting Tips for Singaporeans Earning a Variable Income
One of the benefits of earning a regular monthly salary is that there’s no guesswork when it comes to creating a budget – because you know exactly how much you’ll receive each month.
Even then it’s tough to create a budget that most people will follow because the urge to splurge is just too great – especially in a nation like Singapore where there’s a mall on practically every street corner.
If you are earning a variable income on the other hand – you’re probably cursing those on fixed incomes. Why? Because they can’t even manage the money they KNOW they’ll get every month!
If you’re a business owner, freelancer or sales professional living on commissions – you absolutely must follow these simple budgeting tips:
#1 Prepare for Winter
Everyone knows that squirrels will hoard food during the winter months so that they have enough food to last during the winter months (squirrels that experience the season known as “winter” – Singapore squirrels are exempt).
The concept is sound, but again, those of you making variable income have no idea (for the most part) when a financial “winter” is coming – and how long it will last.
That’s why it’s very important that you start preparing for winter as soon as possible by saving any extra money you receive during the months you bring in exceptional revenue.
For example, if your expenses are $2,500 each month and you brought in $4,500 in April – that leaves you with $2,000 you can put away. But if you earn only $2,000 the following month, you don’t have to worry that you’re $500 in the hole – because you socked away $2,000 the previous month!
Of course, if you’re hoarding cash like a squirrel every month – you’ll be able to survive a long stretch of bad months no problem. Also, don’t forget to have insurance policies in place to protect your wealth against the unexpected (accidents, illness, etc.).
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#2 Create a “Pay Period” Budget
Yes, it’s tough to create a budget when you’re earning a variable income – but it’s not entirely impossible. If you create a “pay period” budget, you can at least come up with at least a foundation for a budget.
All you need to do is add up all of your bills for the year including your utilities, transportation, loan repayments and any other monthly payment you’re making now – then you divide that total by 26 weeks (biweekly) or 12 months (monthly).
Once you have your pay period number down, you can then put aside any extra amount over what is needed for bills to use on “needs” such as food and boosting your savings.
Using the technique for point #1 above (preparing for “winter”), you can then put aside any extra amount over the expenses required for each “pay period” and save up or shore up your pay in bad weeks/months when your salary can’t cover your expenses.
#3 Be Flexible with Your Spending
By nature, having a variable income makes it even more dangerous for you to succumb to the urge to splurge. When you have a good month where you earn thousands more than your monthly expenses – it’s just too easy to go on a crazy spending spree.
I’m not going to lie to you – your first few years earning a variable income will be the most important. That’s because during this time, you’ll get a good picture of what your income will look like.
You’ll be able to see whether a clear “cycle” or “season” becomes apparent throughout the year. That means you’ll be able to find out which months will be high income months and which will be financially slow.
During this time, you’ll need to stay flexible to survive. That means you’ll need to cut back on expenses during rough periods, work harder to earn more during peak earning periods – and create new revenue streams if you’re running a business that’s experiencing an extended downturn in business.
Last but not least, if you have a particularly good year, keep in mind that your taxes will be affected as well, so make sure speak to your accountant regularly so that you can forecast your tax bill.
Live on a variable income? What tips help you stay in control of your finances? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!