"The impact of income volatility on Canadians" survey was conducted by Ipsos for TD Bank in 2017.
Income volatility is the fluctuation of income from month to month. This impacts people working hourly pay jobs where work hours change from week to week, especially in seasonal demand industries. Income volatility also affects those relying on multiple sources of income, self-employed, and those on two week pay periods.
The survey found that 37% of Canadians experience moderate to high income volatility. That's about 10 million Canadians. 5 million of those Canadians experience high or very high income volatility. And 3.3 million of those Canadians can see monthly income fluctuate by 25% or more.
These statistics are alarming.
While it's great that 63% of Canadian have a relatively stable and consistent income. The 10 million Canadians that don't are in a situation where they can't "expect" the next paycheque to cover all their expenses next month.
If this month they spent their entire paycheque, then next month will have one of three scenarios.
1. They get lucky and get the same income next month and can maintain the same standard of living.
2. They get very lucky and get more income next month and can either maintain the same standard of living (and save the extra) or raise their standard of living.
3. They get unlucky and get less income next month and have a financial shortfall. They can't maintain their standard of living unless they take debt (credit card, line of credit, payday loans)
All three scenarios could be equally as likely, but it's always the "black swan" the negative extremes that hurt us the most.
If you are one of these 10 million Canadians impacted by income volatility, what can you do?
There are two simple options;
A. Spend only as much as the lowest income month.
If you expect to make at a minimum $2,500 a month and at most $4,000 a month, plan your spending so that every month you are within the $2,500 budget.
For months where you have extra, you can save it in the bank to build up an emergency fund and retirement fund.
B. Spend the average of your income every month.
If you expect to make an average income of $3,000 a month but that income fluctuates between $2,500 to $4,000, plan to save the extra from higher income months to be used later in lower income months.
If your income is volatile you need to be a little bit more vigilant than those with stable incomes, but it doesn't mean you cannot live a stable life as well.
A little planning and budgeting can steady your life.
Building up your savings to make sure you have money to buy food in lower income months is a smart idea.
Don't leave your lifestyle up to chance.
Save Money Retire Early is written by Jon Lo, a barely 30 something change optimist, and personal finance guy. I believe anyone can be rich or poor, it's what you save that makes the difference.