FUND MANAGEMENT 101: OVERCOMING INCOME FLUCTUATIONS
According to one survey, around 53% of US families are victims of sudden salary swings. In 2014-2015, 34% of them have experienced wage shifts of either up or down, signaling that this kind of trend is not uncommon. Over the course of your career, you are bound to face this kind of inconsistency as well, so knowing how to handle earnings volatility.
Changes in lifestyle such as getting married, shifting jobs, and receiving a raise are all potential causes of salary swings. For those who are self-employed, their earnings are often affected depending on the number of hours they chose to render work each week, or commissions. Nevertheless, these discrepancies will always be inevitable, and the best thing to counter this is to be ready, using simple ways like these:
1. Establish a budget
Sit down and get a paper, then divide it into three section. For the first column, list down your monthly household expenses such as bills. The second part should be used for other spendings including groceries and shopping. The last department should cover your savings, huge investments, and potential massive expenditures like a home or medical procedure. After these keep receipts and invoices to devise your total average expenditures. Always consider worst -case scenarios when it comes to fluctuations. Repeatedly doing this shall help you master how much you actually need on a monthly basis.
2. "Pay your own income"
When cash flows in, stash them in a savings account rather than a checking account. The amount you deposit should be enough for all your financial needs in a span of one month. The point here is your wages may shift, but the money you have kept will not thus, sufficing you in case of a sudden decline of funds. It's like paying yourself, so you will have something for future conflicts.
3. Wipe out both debt and bills
Ever heard of the zero-sum budget concept? This is basically allocating an exact amount for each month in a checking account and have a designation for the whole sum. This should leave you with only a few cash in your account. Budgeting should always prioritized investments and debt repayment. Make it to a point to wipe out what is kept in checking accounts while massive nest eggs should be placed in a savings account.
4. Create a routine
You may use whichever strategy suits you in tracking your expenses. For excess fund, it will also be up to you where to designate them--it can be used either for debt, investments, or savings. Although it may take a while to master the trick of knowing how much you will need, eventually you will get the hang of it.
5. Stash emergency money
Regardless of how well you prepare, there will always be unexpected expenses. The rule is to maintain a three-to six months worth of your salary and set them aside for an unforeseen conflict such as unemployment. For another option, you may also avail of a home equity line credit that will provide you with urgent funds.
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