How to Budget With a Tip-Based Income
Creating a personal budget is tricky enough when you have a reliable and consistent stream of income. If your income is based on tips (or, for that matter, other variable sources like commission, freelance work or independent contracting fees), financial planning becomes even trickier. However, inconsistent income makes money management all the more important. Being organized will help you weather the ups and downs of a tip-based income.
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Instructions
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Put away some savings. With tips, your income level can vary greatly from week to week and even month to month. Lean times will happen, sometimes when you least expect it and are in a poor position to have less money coming in. Having some money put aside for a rainy day will help you get by when this happens.
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Deduct for taxes as you go. Tips must be reported on your taxes, and you'll have to pay the money you owe when you file. Estimate your yearly income as best you can (take your averages based on your first couple of months and use this to calculate an entire year's worth), figure out your IRS tax bracket and set aside slightly more than the percentage you need to give yourself a buffer. See the Resources section below for a link.
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Keep track of your earnings daily. Whether you use pen and paper, a word processor or budgeting software, you'll want to keep track of what you are making week to week. The more time history you record and keep track of, the more accurate an estimate you can make of your average earnings for the sake of long-term financial planning.
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Save your change. It can be easy to think of coins as too little money to worry about, but if you are regularly receiving change as part of your tips, letting them accumulate can add up. Keep a piggy bank or change jar close in an accessible place in your home, save your coins there, and turn them into cash whenever the container is full (your bank can do this, as can change-counting services like Coinstar). This will mean an extra, unexpected $20 to $40 (depending on the size of your jar) every month or so.
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Make bank deposits after every work shift, especially if you are receiving cash. Holding on to too much cash is not only unsafe, it is a good way to encourage impulsive spending. This will also encourage you to always remember to count and keep track of exactly what you have rather than spending it before you do.
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