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How to Build an Emergency Fund on an Irregular Income

By Sally Aquire

moneysavingYou know the importance of building a solid emergency fund as a financial cushion if things go wrong, but this can be even more important if you’re self-employed, because you can’t rely on a fixed paycheck every month and may need to fall back on savings to make ends meet on bad months. Because of this, it can be very challenging to build a decent emergency fund if you don’t earn a regular income. For example, your clients may not pay their invoices on time or you may struggle to find enough work just to meet your monthly bills, leaving nothing left over for boosting the emergency fund. Here are some tips for creating an emergency fund if you can’t rely on a fixed income every month.

Don’t set intimidating targets

The general rule of thumb is to build up six months to a year’s worth of expenses when you are dealing with irregular income. But, this can be incredibly daunting if you don’t know exactly when your next paycheck will be coming in.

To avoid getting frustrated that your emergency fund isn’t growing as quickly as you think it should be, set your initial target at a more realistic level. Instead of aiming for a minimum of six months worth of expenses, set the bar at something like $500. Once this target is met, move the bar a bit higher to $1,000 and keep continuously moving the bar a little bit further away. This way, your goals are much less intimidating, and you’ll be less likely to bail out altogether because you’re less discouraged by how much you need to save.

Put aside whatever you can spare

Without a regular income, you probably won’t have a lot to spare each month but you’ll often find that you can find something to put aside, even if it’s only a minor amount. To get an accurate picture of what you can afford to put into your emergency fund on a given month, you need to draw up a budget. For those of us who aren’t on a fixed income, creating a budget on an irregular income isn’t always intuitive, but it’s not impossible.

Even if you can’t spare much money some months, remember that a $10 transfer to your savings account puts you that much closer to your emergency fund target. Aim to put aside a set amount each month, such as $50, then look to add to that with whatever spare cash you have at a given point in time. It may take you a while to build up to your first goal, but you can always add a little more on months when you’ve received bigger paychecks.

Increase your income

Because an irregular income means that you’ll probably have to build your emergency fund more slowly than if you had regular income, look into earning some extra money so that you can get there a bit quicker. The obvious options are eBay and Amazon or getting a part-time job, but there are plenty of other ways to earn some extra cash.

Cut your expenses

In addition to increasing your income, look for ways to save money in your everyday life. For example, aim to cut your grocery costs, cleaning costs, beauty costs, insurance premiums, and entertainment costs to free up some extra cash to boost your emergency fund. Make sure that whatever you manage to cut out is transferred to your emergency fund, and cut out the temptation to spend it by setting up an automatic transfer for the money that you’re saving each month. Reducing your monthly expenses also has the added bonus that your emergency fund will stretch that much further if you need to tap into it.

Don’t let an irregular income stop you from building up an emergency fund. It might take you longer to reach each target, but an emergency fund can be even more vital when you don’t know how much money you’ll be earning from month to month or whether your earnings for a particular month will be enough to meet all of your expenses.

(photo credit: alancleaver_2000)

Sally Aquire
Sally is a UK-based freelance writer. As well as personal finance, she also writes on health & beauty and lifestyle topics. When she's not writing, she enjoys reading, shopping, hanging out with friends and generally making the most of her downtime!

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  • http://www.insweb.com Robert

    How about this: Put 10% of whatever you earn into a savings account. If you get a check for $540, put $54 into the savings account. This way you build an emergency fund even on an irregular income.

    • Sally Aquire

      That’s another good tip!

    • Martin

      This is exactly what I do, except that I set aside a slightly higher percentage of 15% to build up the emergency fund. It makes it much easier to control your spending when you take it off the top and don’t have it in your checking account anymore. The minute I pay myself (self-employed) I transfer the money into my emergency fund account. And it is a great feeling to watch it grow. The more it grows, the more security.

  • Jacquelyn McCoy

    Good Idea Robert!

  • http://www.moneymakingsense.com Ken

    Good tips. I like the one about increasing your income…a second job is a great way to get that EF funded faster.

  • gina

    This has been a challenge for me. I have recently been starting to reduce expenses by couponing–it REALLY has made a bigger difference than I ever thought possible. I actually feel like a fool for spending full price without coupons before!!

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