Financial Literacy

In today's rapidly evolving economy, the traditional 9-to-5 job with a stable salary is becoming increasingly rare. A significant portion of the workforce now faces the challenges of income volatility, whether by choice or necessity. According to a recent study by the U.S. Federal Reserve, nearly one-third of Americans experience substantial fluctuations in their income from month to month, primarily due to irregular work schedules or intermittent job availability.

For some, particularly those in creative fields or highly skilled professions, a variable income is an accepted part of the job. For example, freelance writers, graphic designers, and IT consultants have long been accustomed to the ebbs and flows of project-based work. These individuals often view the flexibility and autonomy that come with their chosen career path as a fair trade-off for the unpredictability of their income. Some may even consider the potential for higher earnings during busy periods as a bonus.

However, for a growing number of workers, income volatility is less of a choice and more of a harsh reality. Many find themselves piecing together part-time jobs or gig work out of necessity as full-time, salaried positions become scarcer. These workers, often in retail, hospitality, and healthcare industries, face the constant stress of not knowing whether their income will be sufficient to cover their basic needs from one month to the next. The lack of financial stability can make it challenging to pay bills on time, maintain adequate health insurance coverage, or save for retirement.

Mitigating the Challenges

So, what can those facing income volatility do to regain control of their financial lives? Experts recommend several strategies, starting with "income smoothing" - a budgeting approach that accounts for the highs and lows of one's income. Building an emergency fund is another critical step. By setting aside a portion of one's income each month, even during periods of higher earnings, workers can create a financial safety net to help weather the inevitable downturns. 

Exploring options for health insurance and retirement savings is essential for workers without access to employer-sponsored benefits. The Affordable Care Act has made it easier for individuals to purchase health coverage independently. At the same time, retirement savings vehicles like IRAs and Solo 401(k)s can help self-employed and contract workers build long-term financial security.

Despite these genuine challenges, there are steps you can take to mitigate the effects of variable income - and that's what we're going to discuss this week. We'll walk a mile in the (very busy) shoes of the modern part-time retail worker and freelancer to get a better sense of the challenges such workers face.

The Takeaway

As the gig economy continues to expand, the issue of income volatility is poised to become even more prevalent. Sure, the flexibility of gig and part-time work may be a desirable lifestyle choice for some. Yet for others, income volatility is definitely less of a feature and more of a bug of today's economy.

In many ways, workers with variable income must assume far more responsibility than their salaried counterparts. This week's goal is to give you the perspective and the tools to do that effectively.

A couple of generations ago, stable, full-time employment was the norm. And it was a pretty cozy arrangement: You found a good job at a solid company, worked there 40 years, then collected a gold watch and a full pension on your way out the door.

Today, the landscape is almost unrecognizably different. Part-time jobs have exploded in number. Job-hopping, rather than a career in one place, is the norm. Contract workers, gig workers, or freelancers now perform millions of jobs once filled by salaried employees. Understanding the nuances of these job types and their financial implications is crucial for anyone navigating this new economic reality.

These changes have helped companies become more efficient and stay competitive globally. Yet, they've been a mixed bag for workers. Wages have been stagnant for not just years but decades. According to Pew Research, today's hourly wage has the same purchasing power as in 1979, adjusting for inflation.

Meanwhile, the move from full-time salaried staff to part-time and contract workers has created large-scale income variability. Thanks to fundamental changes in the economy, millions of workers today must also find their own insurance and fund their own retirement.

Let's look at some jobs most commonly affected by this inexorable trend toward part-time and contract work.

Identifying Jobs with Variable Income

Variable income jobs span a wide range of industries and roles but share a common characteristic: earnings that fluctuate based on factors such as the amount of work available, the pay rate for individual projects, or the worker's ability to secure gigs. Examples include:

• Freelance Work - Writers, designers, developers, and consultants who work on a project-by-project basis.
• Gig Economy Jobs - Rideshare drivers, delivery workers, and other app-based roles where work is performed on an as-needed basis.
• Part-Time Positions - Roles in retail, hospitality, and other sectors where hours can vary significantly from week to week.

For some people, the flexibility offered by part-time work is ideal. Students, parents, and those with other commitments often find that part-time jobs allow them to balance their various responsibilities more effectively. However, the situation can be highly stressful for those attempting to replace a full-time income by piecing together several part-time gigs. Gig workers, for example, are not covered by minimum wage laws, overtime pay, or workplace safety regulations.

Part-time jobs, by their nature, often lead to income instability. Workers may have their hours cut during slow periods or be asked to work more during busy times, making it difficult to plan and budget. This unpredictability can create a self-reinforcing financial cycle that's hard to escape.

In addition to gig workers, two industries that rely heavily on part-time labor are restaurants and retail shops. Restaurant workers, in particular, face the added complexity of relying on tips to supplement their wages. Given the unpredictable nature of restaurant scheduling and the variability of tips, it can be challenging for these workers to maintain a stable income.

Retail workers also contend with problematic scheduling practices. The widespread use of on-call scheduling, where workers must be available for shifts but are not guaranteed any hours, reduces the number of guaranteed hours available and compromises their ability to plan their lives outside of work.

The Takeaway

The shift towards variable income jobs reflects broader changes in the global economy and workforce preferences. While these roles offer flexibility, they also require a more proactive financial planning and management approach. By staying informed, adaptable, and resourceful, workers can position themselves to thrive in an economy where variable income is increasingly the norm.

If you're a part-time worker, a freelancer, or anyone who isn't a full-time salaried employee with benefits, the odds are good you're familiar with income volatility. Not knowing how much money you'll earn from week to week or month to month can have enormous repercussions on your daily life. It impacts your ability to save money, pay bills, afford health care coverage, and fund a stable retirement.

Despite the challenges, there are steps you can take to mitigate the effects of variable income—and that's what we're going to discuss in this article. We'll explore strategies and tools to help you smooth out your income fluctuations and gain financial stability.

Understanding Income Smoothing

Income smoothing is the process of managing your finances in a way that evens out the highs and lows of your income over time. The goal is to create a more predictable and stable financial situation, even when your income varies monthly.

The most important tool for income smoothing is an emergency fund. This separate account is a savings account that you can draw from when your income dips below your regular expenses. Ideally, your emergency fund should cover three to six months' worth of living expenses - but even a relatively small fund is still helpful for avoiding unplanned credit card debt. For those with particularly volatile incomes, aiming for a larger cushion of six to twelve months' expenses may be more appropriate.

Building an emergency fund can seem daunting, especially when your income is unpredictable. However, even small contributions can add up over time. Aim to save a portion of every paycheck, no matter how small. When you have periods of higher income, consider resisting the urge to spend the extra money and instead direct it towards your emergency fund.

Budgeting for Variable Income

In addition to building an emergency fund, effective budgeting is crucial for managing variable income. However, traditional budgeting methods that rely on a consistent monthly income don't always work well for those with fluctuating earnings.

Instead, consider using a zero-based budget. With this method, you assign every dollar of your income to a specific expense or savings category. When your income is higher, you allocate more money to savings and discretionary categories. When your income is lower, you focus on covering essential expenses and drawing from your emergency fund if needed.

Another helpful budgeting strategy is to base your budget on your lowest monthly income rather than your average income. This conservative approach ensures that you can always cover your basic expenses, even in lean months. Any extra income can then be treated as a bonus and allocated to savings or discretionary spending.

Planning for the Future

While income smoothing strategies can help you manage short-term income fluctuations, planning for your long-term financial future is also essential. This step also includes saving for retirement, even if you don't have access to a traditional employer-sponsored plan.

Self-employed individuals and freelancers can save for retirement using individual retirement accounts (IRAs) or solo 401(k)s. Like traditional 401(k)s, these accounts offer tax advantages and allow you to invest your savings in various assets like stocks and bonds. The key is to contribute consistently, even if the amounts vary based on your income.

It's also crucial to have a plan for managing your taxes. When you're self-employed or have multiple income sources, you're responsible for calculating and paying your own taxes, including estimated quarterly tax payments. Setting aside a portion of every paycheck in a separate savings account for taxes can help ensure you're prepared when tax time rolls around. Further, maintaining meticulous records of expenses and deductions can reduce tax liability, leaving more money in your pocket.

The Takeaway

Income smoothing is an essential strategy for anyone facing the challenges of variable earnings. By establishing a substantial emergency fund, adopting flexible budgeting practices, diversifying income sources, and planning for taxes, you can create a stable financial foundation. 

By staying committed to your goals and adaptable in your approach, you can take control of your financial life, even in the face of unpredictable earnings.

Whether you're a computer programmer, a driver for Uber, or you make your living as a writer, the freelance lifestyle offers a few intriguing advantages: You have plenty of flexibility with your schedule, the commute is as short as it gets, and you're guaranteed to get along with your boss.

Yet one aspect of freelancing makes it a non-starter for many individuals accustomed to a traditional job: a lack of income predictability. In some cases, this situation isn't necessarily a bad thing - some freelancers make more money independently than they did in an office setting, so variability is a plus.

However, if you're starting out or your freelance income barely covers your expenses, this unpredictability can be challenging. When it comes to budgeting, saving, and even handling taxes, freelancers often have to show much more discipline and foresight than salaried workers.

Once you decide to go out on your own, the buck stops with you, for better or worse.

The Growing Freelance Landscape

Let's begin with the starkest difference between freelancers and salaried workers: one has work given to them while the other has to actively seek out and secure work to keep getting paid.

It's true that talented freelancers are, and will likely always be, in high demand. Doing business with contract workers is often less expensive for companies than hiring full-time employees. This fact has created an ever-increasing appetite for freelance labor. A recent survey estimated that about 60 million freelancers work nationwide - roughly one-third of the entire workforce.

Technology has also significantly contributed to the growth of the freelance market. Ridesharing apps like Uber and Lyft have created an enormous new pool of freelancers almost overnight. Online platforms like Upwork, Fiverr, and Freelancer.com have made it easier than ever for businesses to connect with freelancers, offering a wide range of services, from graphic design and programming to writing and virtual assistance.

This trend is expected to continue as more and more businesses embrace the flexibility and cost savings contract workers offer.

The Challenges of Freelance Life

Despite the growing opportunities for freelance workers, the challenges remain essentially the same. Monthly income can vary radically, as freelancers must adjust to the ebb and flow of client work. Getting paid can also sometimes be tricky. It may take weeks or even months for a freelancer to receive payment for a project, depending on the invoicing and billing procedures involved or the client's pay schedule.

This income variance can make everyday budgeting a challenging task, let alone trying to pay for health insurance, fund a retirement plan, and keep up with taxes - three critical items on any freelancer's agenda.

Thriving in the Freelance Economy

Despite these challenges, many freelancers find the benefits outweigh the drawbacks. The freedom to set your own schedule, choose your own projects, and work from anywhere can be incredibly appealing. For some, freelancing offers the opportunity to turn a passion into a career or to achieve a better work-life balance.

However, success as a freelancer requires more than talent and drive. It demands financial discipline, self-motivation, and the ability to adapt and learn constantly. Here are a few strategies freelancers can employ to thrive in this dynamic landscape:

• Build a solid financial safety net - Aim to save at least six months' living expenses in an emergency fund to weather any dry spells at work.

• Diversify your client base - Don't rely on just one or two major clients. Cultivate a diverse portfolio of clients to mitigate the impact of losing any single source of income.

• Invest in your own development - Continuously update your skills and knowledge to stay competitive in your field. Take online courses, attend workshops, and earn certifications.

• Network relentlessly - Build relationships with other freelancers and potential clients. Attend industry events, join online communities, and reach out to people you admire.

• Set clear boundaries - Establish clear guidelines with clients about work hours, communication preferences, and project timelines to avoid burnout and maintain a healthy work-life balance.

• Stay on top of your finances - Use accounting software to track your income and expenses, set aside money for quarterly estimated tax payments, and consider working with a financial advisor or accountant to optimize your financial plan.

The Takeaway

As the economy continues to evolve, it's clear that freelancing will play an increasingly significant role in the future of work. While this shift presents challenges, it also opens up new opportunities for workers to take control of their careers and forge their own paths.

For those considering making the leap into freelancing, it's essential to go in with eyes wide open. Understand the financial realities, develop a plan to manage the challenges, and cultivate the skills and mindset necessary to thrive in this dynamic environment.

Budgeting for basics such as food, shelter, and clothing can be challenging when you can't predict how much money you'll earn from week to week.

And saving? That can sometimes seem like an impossible dream.

This is the reality for many retail workers who are paid by the hour. Because their schedules often fluctuate based on business demand, they have little certainty about their income. Employers use a technique called "on-call scheduling" to minimize labor costs during slow business periods.

While this makes financial sense for the business, it can lead to serious problems for hourly workers. Such scheduling practices can make basic life tasks like budgeting, paying bills, saving for the future, and securing childcare extraordinarily difficult. Planning your life becomes a constant challenge if you don't know when you'll be required to work.

How widespread is this problem? Let's take a deeper look.

The Prevalence of On-Call Scheduling

In recent years, the issue of on-call scheduling has gained significant attention from policymakers and workers' rights advocates. A 2022 study by the Economic Policy Institute found that about 10% of the U.S. workforce, or about 13 million workers, have irregular or on-call work schedules. The study also found that workers of color, particularly women of color, are disproportionately affected by these practices.

On-call scheduling allows employers to use sophisticated software to make real-time decisions about staffing levels based on factors like sales data, weather forecasts, and even social media activity. By incorporating such data into their scheduling systems, employers can theoretically optimize labor costs by ensuring they are not overstaffed during slow periods.

Unfortunately, this optimization often comes at the expense of workers, who must remain available for work with no guarantee of actually getting to work or being paid. If workers are not called in for a shift, they miss out on the pay they would have earned had they been given a regular shift.

This arrangement introduces a great deal of instability and unpredictability into the lives of these workers. Along with the loss of potential earnings, workers must often scramble to find last-minute child care or cope with disruptions to plans for school, family obligations, or a second job.

Even if a retail worker isn't employed by a business that uses on-call scheduling, the highly variable nature of retail customer traffic can still lead to inconsistent income. Managers may send workers home early if business is slow. Some states have laws mandating a minimum number of hours of pay when a worker reports for a scheduled shift, but compliance with and enforcement of these laws can be spotty.

The Impact on Workers

The unpredictability caused by on-call scheduling and last-minute shift changes can wreak havoc on the lives of hourly retail workers. Imagine trying to budget for rent, groceries, and other essentials when you don't know how much you'll earn from one week to the next. Planning for the future, whether saving for a car repair, a child's education, or retirement, can feel like an impossible task.

Unstable schedules can also make it difficult for workers to pursue education or training to advance their careers, as they may be unable to commit to regular class schedules. Childcare also becomes a significant challenge, as most daycare centers require predictable drop-off and pick-up times, and last-minute babysitters can be hard to find and prohibitively expensive.

Moving Forward

The fight for fair workweek laws and stable scheduling in the retail industry is ongoing, and progress will likely be incremental. However, there is cause for hope. As public awareness of these issues grows, more policymakers are taking notice, and workers are gaining voice and leverage.

If you work in the retail sector, keep sight of long-term financial goals. Research and consider opening a retirement account, such as an IRA, to begin saving for the future. Even small, consistent contributions can grow over time due to compound interest.

Diversifying your income can help offset the variability of retail work. Consider looking for additional part-time work, freelance opportunities, or gig economy jobs that can supplement your income. Skills-based side hustles or online sales platforms can also provide additional revenue streams.

The Takeaway

On-call scheduling and similar practices often make it difficult for hourly retail workers to enjoy financial stability. If you're having a hard time budgeting, saving money, or paying bills because of inconsistent income, make sure you're aware of your rights under the laws of your state.

The road to truly fair scheduling in the retail industry may be long. Still, every worker who speaks up and every policy passed brings us one step closer to a future where every job comes with the dignity of a stable, predictable income. It's a future worth fighting for.

One of the most significant drawbacks to contract or freelance work, and some part-time work, is a lack of employer-provided health insurance and retirement plan options. Many full-time salaried workers enjoy the security offered by such benefits. Yet, freelance workers risk facing hefty medical bills or an underfunded retirement if they don't address these issues.

With that in mind, let's examine health insurance and retirement plans for workers who cannot rely on employer-based options.

Planning for a Secure Retirement

If you aren't fortunate enough to have a defined benefit pension or 401(k) retirement account through your work, there are still various options to help you prepare for your post-work life.

First and foremost, it's crucial to break the cycle of "lifestyle inflation." Many people fall into the trap of spending more as they earn more rather than saving the additional income. They opt for a bigger house, a newer car, or more luxury goods rather than increasing their retirement contributions.

Avoiding this pitfall is especially important for independent workers. Salaried employees often have the advantage of automatic insurance and retirement savings deductions. When the responsibility falls entirely on your shoulders, it's easy to deprioritize saving in favor of more immediate wants and needs.

One of the best ways to ensure you're consistently saving for retirement is to "pay yourself first." Treat your retirement contributions like any other bill—a non-negotiable expense that you budget for each month. Open an Individual Retirement Account (IRA) and set up automatic monthly transfers from your checking account.

There are two main types of IRAs to consider: traditional and Roth. With a Traditional IRA, your contributions are tax-deductible in the year you make them, but you pay taxes on the money when you withdraw it in retirement. Roth IRAs work the opposite way - you contribute post-tax dollars, but your withdrawals in retirement are tax-free.

For 2025, the annual contribution limit for both types of IRAs is $7,000, or $8,000 if you're 50 or older. If you're self-employed and have no employees, consider a Solo 401(k), which allows you to contribute up to $70,000 plus an additional $7,500 if you're over 50. And if you're between the ages of 60 and 63, you can contribute up to $11,250 to either account.

Whichever route you choose, the key is to start early and contribute consistently. Even small amounts can add up significantly over time thanks to the power of compound interest. Aim to save at least 10-15% of your income for retirement. If that seems out of reach, start with what you can afford and increase your contributions by 1-2% each year until you reach your target savings rate.

Navigating Health Insurance Options

Finding affordable health insurance has long been challenging for many freelancers and part-time workers. Before the Affordable Care Act (ACA), individual health insurance plans were often prohibitively expensive or unavailable to those with pre-existing conditions.

The ACA has made health insurance more accessible for millions of Americans. Under the ACA, you can purchase health insurance through federal or state marketplaces, and you can't be denied coverage or charged more due to pre-existing health conditions.

If your income is between 100% and 400% of the federal poverty level, you may qualify for subsidies that lower your monthly premiums. For 2025 coverage, that means an income between $15,060 and $60,240 for an individual. You may also be eligible for cost-sharing reductions that lower out-of-pocket deductibles, copayments, and coinsurance costs.

To see your options and potential subsidies, visit Healthcare.gov or your state's marketplace website. Open enrollment typically runs roughly from October to January each year (exact dates vary by state). Still, you may qualify for a special enrollment period if you experience certain life changes, such as losing other coverage, getting married, or having a child.

If your income is below 138% of the federal poverty level (in states that have expanded Medicaid), you may qualify for Medicaid, a public health insurance program. Eligibility and coverage vary by state, so check with your state's Medicaid office to see if you qualify.

Medicare provides various health insurance options for those over 65. You can sign up for Medicare during a seven-month Initial Enrollment Period, which starts three months before your 65th birthday.

If you're a high earner, you might consider a high-deductible health plan (HDHP) paired with a Health Savings Account (HSA). With an HDHP, you pay a lower monthly premium but have a higher deductible. You can use tax-free funds from your HSA to pay for out-of-pocket medical expenses, and any unused funds roll over from year to year. Plus, once you turn 65, you can withdraw HSA funds for any reason without penalty (though you'll pay ordinary income tax on non-medical withdrawals).

Don't Neglect Disability and Life Insurance

Health insurance isn't the only type of coverage freelancers and part-time workers need to consider. Disability insurance, which replaces a portion of your income if you cannot work due to illness or injury, is also worth considering. As a freelancer, you don't have the safety net of employer-provided disability coverage or paid sick leave.

There are two main types of disability insurance: short-term, which typically covers you for a few months to a year, and long-term, which can cover you for several years or until retirement. You can purchase individual policies or, in some cases, access coverage through professional associations or unions.

Life insurance is another consideration, especially if you have dependents who rely on your income. Term life insurance, which covers you for a set period (such as 10, 20, or 30 years), is often the most affordable option. The coverage you need depends on factors like your income, debts, and future financial obligations.

Putting It All Together

Navigating insurance and retirement planning as a freelancer or part-time worker can feel overwhelming, but it's essential for your long-term financial health and security. By prioritizing these needs and taking advantage of the options available, you can create a robust safety net that will serve you well in times of need.

Remember, the earlier you start planning, the more time you have to benefit from the power of compound interest and weather any market fluctuations. Make a plan, automate your savings and contributions where possible, and review your coverage and investments regularly to ensure they align with your needs and goals.

It is also important to educate yourself on your rights and advocate for yourself if needed. Familiarize yourself with the terms of your health insurance policy, and don't hesitate to appeal denied claims or negotiate medical bills. Keep detailed records of your income and expenses for tax purposes, and consider working with a financial advisor or accountant to optimize your retirement and tax strategies.

The Takeaway

While the path to financial security may be more complex than it is for traditional full-time employees, with careful planning and diligence, freelancers and part-time workers can achieve a secure and stable financial future. The key is to start now and stay the course, even when the road gets bumpy. Your future self will thank you.