4 Strategies to Deal with Uneven Paychecks

Content Provided in Partnership with Longitude Financial Planning

The seasonality of contract work makes smart financial planning important. 

Through macro trends in the economy and local seasonal trends, many electrical workers find that their income is unpredictable. Busy months and slow months create an uneven income, making it difficult to plan for the future. 

Variable income can be a risk if it is not managed correctly. Missing bills and taking on debt until the next paycheck comes in is not a sustainable solution.

Strategy 1: Create a Budget

Through budgeting, we become aware of our spending habits. A good budgeting software will make it easy to review transactions. 

Reviewing transactions makes clear the categories of spending that are costing us the most and least. We can then reflect on our spending habits and ask ourselves if the expenses are worth the money we are spending.

Questions like, Is it worth the $75/week to go out for lunch? What if I brought lunch with me? How could I spend that money on something that is more meaningful than the convenience of going out to eat every day at work. 

Tracking transactions also allows us to create averages for both income and expenses. Average numbers can inform decisions better than any single point in time. An average smooths natural variability in both income and expenses. 

Strategy 2: Maintain an Emergency Fund

By maintaining 6-12 months of expenses in an emergency fund, the periods where income is slow is less stressful and easier to manage. Your emergency fund is the Foundation that your family's financial security is built on. 

It is psychology draining to know that bills need to be paid and not know where the next job is coming from. An emergency fund is there to relieve the stress and provide a cash flow buffer for you and your family. 

The key to proper use in lean times is to maintain its “emergency” status. Only draw on emergency funds for necessities, not for the niceties or luxuries of life. 

If an unexpected event causes you to draw down your emergency fund, that's great! It's why the emergency fund exists. It's much less expensive and risky to use your own savings than to go into debt to meet an emergency. 

Importantly, If you dip into your emergency fund, fill your emergency fund back up at the first chance you get. Pay yourself first, develop strong saving habits and protect yourself with a healthy emergency fund.

Strategy 3: Diversify Income Sources 

Diversification leads to resilience. If you’re in a committed relationship you may have noticed that your partner’s income is there to support your family when your income is going through a slow period. 

If you’re single and find the income from your tradework is slow, consider picking up some side work. With additional time available and a bank account slowly draining, some gig or small contract work can help to smooth your income through the slow periods. 

Work training other tradesmen, working for the local union, creating content, or doing odd jobs for friends and family will keep your income steady. Being occupied by work can also prevent frivolous spending on things that do not align with your values, like drugs or alcohol. 

Volunteering your time, although not directly producing income, will keep you involved in the community and can lead to paid opportunities if others know you’re open to it. 

Strategy 4: Find an Expert

If the work of building a budget and planning for an emergency fund and your personal goals strikes you as too complex or time consuming, consider meeting with a financial professional for help. 

Interview many experts to find the best fit. All advisors will meet with you (for free) to describe their services and costs. If they don’t, or are reluctant to talk about the cost of their service, you may not want to work with them. Seek advisors who are open and honest with you.

The best financial professionals will be fiduciaries, meaning they must put your needs ahead of their own and can only act in your best interest. Bonus if they are fee-only, meaning they do not accept commissions from selling products. 

Fee-only advisors have their incentive structures more closely aligned with clients than advisors who accept commissions from insurance and other financial companies. Fee-only advisors are only paid by their clients and therefore do not seek to push products that can be less than ideal for their clients. 

In Summary: Becoming aware of your cash flow through a budget, maintaining an adequate emergency fund and diversifying your income are all strategies that can help you to manage an uneven income. 

At Longitude Financial Planning, we work with tradesmen across the country helping them to understand their financial picture and maximize the potential for them and their families to reach their goals.