Learn to Budget with a Tip-Based Income

Budgeting tip-based income can be a little bit challenging. Yet when you work in an industry where the majority of your income comes from tips, knowing how to handle your money is important. Here are a few budget considerations to think about when you are living mostly off of tips.

Deposit the Money

The first thing that you need to do is deposit your tips into some type of account. When you keep a lot of cash lying around, it is dangerous and usually results in your spending it. When you have cash, you will usually spend it and then have no idea where it all went. When you take the money and immediately deposit it into a bank account, you will be able to keep track of your spending better. You can log onto an online banking system and look at every transaction if you want. Therefore, before you can properly budget anything, you have to have a way to track everything. 

Consider Taxes First

When you get a majority of your income from tips, you will need to consider the tax implications of the money. You should consult a tax professional to look at your income and tax liability. A tax professional can recommend how to handle your taxes on this income. Most of the time, you should set up another account to transfer money to for your taxes at the end of the year. If you do not set aside the money immediately for taxes, you may ultimately have nothing to pay them with. Getting the money into a separate account prevents you from spending it so easily. The last thing that you want to do is not pay your taxes. This can result in large fines and, in extreme cases, even jail time. Therefore, you want to place a priority on handling your taxes. 

Fixed and Variable Expenses

When you deal with a tip-based income, the amount of money that you bring in from month to month can vary greatly. You never know what to expect when your income is based on the generosity of others. Therefore, when you are budgeting on a monthly basis, you need to know how much you need for all of the fixed expenses: things like your mortgage or rent payment, car payment, insurance and utilities. These things will have to come out every single month and should be close to the same. 

You probably also have some expenses that change from month to month. Expenses for things like groceries and entertainment can change every single month. When budgeting everything out for the month, you know that you have to make enough to cover all of the fixed expenses. Then if you need to adjust anything for a drop in income, you can subtract from variable categories like entertainment expenses to make up the difference. 

blog comments powered by Disqus