Saving for Retirement with Unpredictable Income
August 7, 2023 Author: Tess Downing, MBA, CFP®, Complete View Financial
Saving for retirement is a challenge when unpredictable income becomes a factor. An essential part of this process is developing a retirement plan to work off of and base your savings on. Understanding how much you will need to save to meet your lifestyle needs is necessary. From there, you can work back from your monthly income and accommodate expenses in a way that leaves the rest of your funds for discretionary spending. While this is a simplified version of the process, saving for retirement with unpredictable income is very doable with the help of a financial planner and a retirement plan.
Commission Income
Commission income doesn’t mean you lack funds; it simply means you don’t know when you’ll have access to this source of income. It could be because of the sale cycle of your products and the item's price amount; with this being the case, finding workarounds that make retirement savings easier is essential.
Workaround #1: Remove All Surprises
Determining your expenses is vital to eliminate surprises when mapping out your plan. Gather your financial documents and the information you need when choosing your costs. Divide your expenses into these categories:
Fixed: housing, car, insurance; any payments that do not change.
Variable necessities: things that you can’t live without, but they change value, such as groceries, utilities, etc.
Variable discretionary: things you can live without, such as entertainment and dining.
Once you divide these values, create a monthly spending projection that predicts the amount you will spend in each category each month. Remember when specific payments are due and include those in each month as necessary.
Workaround #2: Create a Cushion Account
Another option is to fund another bank account with excess cash, giving you money to start with your savings. Be sure to monitor inflows and outflows. By dividing expenses, you’ll know how these outflows can change monthly. When possible, set some money aside for emergencies.
Workaround #3: Create your Predictability
You can determine how much you need to transfer to your other account to cover your monthly expenses based on what's in your cushion account. This will help you protect your fixed and variable necessities and determine what amount you have left to spend on things like entertainment and restaurants. Be sure to start with more cushions at the beginning and monitor when you can start making changes to put more money toward your discretionary spending.
Workaround #4: Make “Saving” an Expense
Saving should no longer be an optional task. Treat savings as an expense to ensure you don’t neglect this responsibility. Instead of leaving extra funds in your spending account, move them into your savings account, where they can be invested or contributed to your savings plan.
Workaround #5: Create Accountability with Someone
Don’t go through the retirement saving process alone. Make your goals visible, write them down, and tell them to someone else to ensure you stick to them. Tell them to someone you know or work with a financial advisor that can help you reach these goals. Come up with a plan for the future to ensure you can live the lifestyle you dreamed of in retirement.
Overall
Although saving with unpredictable income can be challenging, strategies such as a cushion account can make this task more manageable. For more information and guidance throughout this process, contact Complete View Financial and see how we can help you save for retirement.