Financial Fitness For Erratic Earners
Lucky packet pay sheets and last-minute deals that go through or fall through leaves you somewhat flustered at month-end. Either you’ve done very well or you’re on the brink of financial ruin. The joys of fluctuating earnings are sometimes overshadowed by the fact that there are just so many grey areas where your budget is concerned.
When you first start off earning commission, it can be quite daunting to work out a budget. If you know your expenses, however, you can work out your absolute basic. This is the amount you need to clear in order to pay your basic expenses. If you don’t make this amount every month, it’s important that you save the surplus you make on others. If you don’t, you may jeopardize your credit score during the bad months.
Avoid getting into contracts that force you to pay a set amount every month for a service, especially those contracts that run over a 12- or 24-month period. Not only will you be locked in, but they will also be able to take legal action against you if you are unable to pay during your slow months. This is especially bad if you happen to have more than one slow months in a row. Keep an eye out for gym contracts or other services that run on a month-to-month basis.
What About Debt?
You are one of the few types of people who would benefit from revolving credit. The only reason is because you don’t really have very many options available to you. Having a revolving facility could assist you during the slow months, but only if you’re disciplined enough to repay the facilities during the good months. Having a revolving facility that is permanently maxed out won’t help you in the long run and will just cost a fortune in fees.
Emergency Savings and Overhead Savings
There are two buffers you will need to have in place to ensure you don’t get into a debt cycle. The first one is your emergency savings. This is the money you save up to create a buffer should you get into a nasty pickle, for instance, retrenchment. The recommended amount here is six times your absolute basic.
Overhead savings is unique to those who earn erratically. This is the money you need to set aside to cover your expenses during the dry months. The recommendation is three times your absolute basic and those in the various industries agree that should your drought go on for longer than three months, you may want to look for something else unless you’re in a seasonal industry.
Many things can be paid upfront and if you happen to have the funds, do so. Tuition fees, utilities, levies and even certain instalments on debt. Getting into the habit of taking care of your commitments before anything else will ensure that in no time at all, instead of just focusing on debt repayments you would be able to create wealth.