4 Ways to Deal with Household Income and Expense Volatility

Income & Expense Volatility

 One of the four financial health influencers is the volatility of income and expenses. Households impacted by such volatility find it difficult to achieve financial well-being. Increased expenses or reduced income often dictate tough lifestyle choices and increase stress levels beyond chronic. When there is increased income or reduced expenses, there is a less problematic increase in household discretionary funds and the fun that goes with it. Seasonal workers, those on fixed incomes, or subject to inconsistent hourly work schedules are especially vulnerable to this type of volatility.

These financial shocks can have a devastating effect. Income and expense volatility does not have to impede your pursuit of 6 Financially Healthy Behaviors. Volatility can be mitigated by preparing for it. John F. Kennedy once said, “The time to repair the roof is when the sun is shining.” Please don’t wait for it to rain before you prepare. 
One cause of volatility is “stuff happens.” Happens to everybody. No one is immune. To achieve financial well-being, you need to possess the “capacity to absorb financial shocks.” 
Economic setbacks can be self-inflicted or come from external sources. The future economy will be disrupted by geopolitical, weather, or cyberattack events.  It is essential to be able to manage and recover from the inevitable financial shocks. 
Every household should have a disaster recovery plan. The foundation of a financial recovery plan is the Emergency Fund, the “liquidity buffer” between you and ruin. Building an emergency fund is your #1 priority, no matter your age. You should well establish an emergency fund before you divert resources to a debt reduction strategy.
Emergency funds are highly individualized. Sufficiency depends on a variety of factors, including your health, your age, your temperament, dependents, housing situation, the stability of your job, your risk tolerance, and more. Just be mindful of the truism, “It’s better to have money and not need it; than to need it and not have it.” Your emergency fund can’t be too big. Its size may determine how it is stored but not its existence.

4 Ways to Jumpstart an Emergency Fund

1. Tax refund Don’t spend it. Save it.
2. Gifts Ask for money instead of things. Return or sell stuff for the money.
3. Increase savings through increased income from overtime, side hustles, etc.
4. Simulate the emergency now. What does austerity look like? Are you willing to make and cope with tough decisions? Decisions like those that will be forced on you by an actual emergency. This is best done in bursts. For most households, it is easier to implement austerity for 2 months 3 times in a year than to do it once for 6 months.

• Cut back hard on your lifestyle.
• Fund only NEEDS not WANTS.
• Exercise EXTREME frugality.

“Savings” ain’t savings until you deposit the money. How often have you said, “I saved money” because you paid $40 for a $100 pair of shoes at 60% off? What happened to the $60? If you don’t deposit the $60 into a savings instrument, then you haven’t saved anything. What you did was “cost avoidance” and not savings. All savings from canceled subscription services and other austerity mandated changes must be deposited to be real. 
Being able to deal with income and expense volatility successfully requires preparation. The base of that preparation is an emergency fund. Start or grow yours now. 

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