How to Use Savings Accounts to Manage Fluctuating Income

Freelancers, commission-based workers, or those with seasonal jobs – all of them have one thing in common. They don’t have a stable income or their income fluctuates based on the flow of work. To deal with this income unpredictability, a tailored approach to savings and expense management is crucial. 

In this article, we will guide you on how to establish a dedicated savings account, especially if you don’t have a regular source of income. 

Understanding the Need 

For those with fluctuating income, such as freelancers, commission-based workers, or seasonal employees, consistent budgeting and financial planning can be difficult. The unpredictability of income requires a tailored approach to savings and expense management. Opening a Savings Account helps address this by providing a buffer to smooth out income variability and cover expenses during lean periods.

Establishing a Savings Account

• Set Up a Dedicated Account: Start by opening a separate savings account specifically for managing your income. Opening a low-minimum balance or zero balance savings account might help. Such accounts don’t come with minimum monthly balance maintenance requirements. However, most zero balance savings accounts offer limited benefits. Consider this factor before signing up for an account.
• Build an Emergency Fund: Aim to save at least three to six months' worth of expenses in your savings account. This emergency fund acts as a financial cushion during periods of lower income, ensuring you can cover essential expenses without stress. 
• Create a Budget with Flexibility: Develop a budget that accommodates varying income levels. Allocate a percentage of your income to your savings account. During months with higher income, contribute more to the savings account to build a larger reserve. Conversely, during months with lower income, draw from this account to maintain your budget and cover necessary expenses. 
• Automate Savings: To simplify the process, set up automatic transfers to your fluctuating income savings account. This ensures you consistently save a portion of your income, regardless of how much you earn each month. 

How a Savings Account Can Help Those with Irregular Income

• Provides a Financial Cushion: Helps cover expenses during low-income periods, reducing financial stress. 
• Facilitates Consistent Cash Flow: Smooths out cash flow by drawing from savings when needed and replenishing during high-income months. 
• Supports Better Budgeting: Keeps savings separate from daily spending, aiding in more accurate and flexible budgeting.