When your compensation includes tips, you get used to making do with unpredictable paychecks. But fluctuating income shouldn’t prevent you from working towards your financial goals. In this guide, we’ll go over some best practices for budgeting with tips in mind — and show you a few ways to start saving.
Sort Cash Tips ASAP
It’s tempting to stuff your tips in your bag as soon as you clock out. But don’t let your loose change get lost: As soon as you get home, organize your earnings into four piles:
- Taxes (20% of total percent). If you’ve ever owed in April, you know why this matters.
- Essentials (50 –to 60% percent). This cash will go towards your rent, groceries and bills.
- Goals (10– to 20% percent). These could be savings buckets for healthcare, vacations, classes or anything else you’re working towards.
- Flex (10% percent). Because fun is non-negotiable.
We recommend using the envelope method — it’s hard to beat in terms of practicality and convenience. But ultimately, where you park that money doesn’t matter as much as organizing it as soon as you can. Prioritizing your budget will be worth it in the long run — and make the most of your cash.
Prepare for Down Periods
Because your income relies on tips, you know that slow periods can mean barely scraping by, or going into debt to cover the absence of customers. BUt because these periods are inevitable, you can prepare for them. Here’s how:
Step 1: Review your monthly income from the last year (tips included!). Find the month you made the least, and use that as your baseline.
Step 2: Find your average monthly earnings for the last 12 months (you can calculate that by adding up your take home pay for each of those twelve months, then dividing that number by 12).
Step 3: Calculate the difference between your average monthly pay and that lowest-income month. This is your savings goal.
For example: If your average monthly earnings were $2,500, and your lowest-earning month was $1,700, you’re shooting to have $800 in your savings account, earmarked for those slow periods.
Now that you know your target, start saving. If you know when your slow seasons are, calculate how many paychecks you have between now and then, and figure out a sustainable amount to stash each month leading up to that lull. You might not get to your full target, but having any savings to support you through a slow period can be helpful. You should also consider:
- Asking your boss if you can help in other roles during off times
- Picking up for temp work or private gigs
Remember: Every little bit helps!
Swap Shifts Strategically
Shift swaps can be a massive boon to your income, if you pay attention.
Here’s how: After every shift, track your total tips and hours worked, then divide them to find your real hourly rate.
This metric tells you which shifts are your most valuable — and which you could stand to move around. You might even be surprised to find that the days you think are your best aren’t actually as lucrative as other shifts.
Knowing your earning potential can help you make smarter shift swaps, and even allow you to trade up, not just out.
Don’t Ignore Your Health
The hospitality business is notoriously hard on its workers’ bodies. And if you’re not taking care of yourself, you could become injured or sick, losing income, shift priority and even your job.
You need to protect yourself — and your paycheck — by protecting your body:
- Buy supportive, non-slip shoes (Ask your employer if they offer any discounts on this — some do!)
- Wear compression socks to encourage circulation
- Take your legally-mandated breaks
- Eat something with protein before your shift so you’re not crashing mid-rush
Taking precautions and investing in the right gear can save you a lot of pain, stress and money later on.
Give Yourself a Break from Expensive Bills
Debt can undo your financial plans, and can be especially troublesome when you’re working with a variable income. If you’re stuck making unaffordable payments on your debts, Accredited Debt Relief may be able to help. Our program can slash eligible monthly debt payments by 40% for things like credit cards, medical debts and personal loans, and even help you get debt-free in as little as 24-48 months.