Relying on cash tips for a good chunk of your income has both advantages and drawbacks. On the one hand, you’ll almost always have cash on hand (which is increasingly rare these days). But that can also be a potential drawback if you don’t practice discipline with how you account for that cash. Additionally, relying on tips means your income will fluctuate from month-to-month, sometimes in the extreme. That’s why it’s important to establish and stick to a budget with tip income. Let’s take a look at some tips that will help.

Figure Out Your Baseline

When figuring out a budget with tip income, you need to establish two key figures: how much you need to make each month and how much you actually make. Figuring out how much you need to make is easy; just add up all your regular monthly bills and make that your baseline amount.
Figuring out how much you actually make is trickier and takes a bit more time. Start keeping track of exactly how much you bring home every day. Do this for 10 weeks to figure out your average take-home pay.

Make Sure Your Average is … Average

You’ll want to work out your take-home pay during as “average” a time as possible, especially if you work in a business or a geographical area that’s heavily affected by seasonality. That way, your average will be reflective of the lower end of your take-home pay which means you shouldn’t come up short, even during slower months.

Factor in All Expenses

When planning your budget, you’ll want to be sure to include not only your regular monthly (fixed) expenses, but also variable and periodic expenses, too. Variable expenses are things that happen every month in different amounts, such as groceries, gas and clothing. Periodic expenses only happen once or a few times annually, such as vehicle registration, birthday gifts and travel. Don’t let these expenses take you by surprise.

Save for Emergencies

Although we recommend all individuals and families establish emergency savings, it’s even more important when you rely on tip income. Because your income fluctuates and employment may not be as secure in seasonally based positions, having money set aside in case of a budget shortfall or job loss can keep you going. Start with a goal of saving $500, and keep going until you have three months’ of living expenses saved. If you hit that goal, push yourself to save six months of living expenses.

Be Careful with Cash

You’ll be dealing with potentially large amounts of cash daily, so you’ll want to take some common sense precautions. Be sure to stash your cash safely away as soon as you get home or, better yet, swing by the bank and deposit it as soon as possible. If you prefer paying for everyday expenses with cash, keep the lower denominations and deposit larger bills.

Challenge Yourself

One of the great things about having regular access to cash is it makes it easy to do a savings challenge. A savings challenge is a fun and rewarding way to save for something specific, such as a new TV or a vacation. For example, you can commit to putting away every $5 bill you receive, or you can do the 52 week savings challenge where you increase the amount you save every week for a year, starting with just $1 per week. No matter how you do it, the idea is to set a goal and save with intention to meet it.