Some financial tips for when you’re working for tips

Roxanne Ray October 24, 2017 0

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Many Asian Americans work in the service industry and earn a large portion of their income in tips. According to the Economic Policy Institute, Asian Americans make up 7.3% of the total workforce, but constitute 8.9% of servers and bartenders, and even more noticeably, 12.3% of all tipped workers. So the current debates on the minimum wage and whether that wage can be reduced when workers are also tipped are particularly relevant to Asian Americans, and so are money management strategies related to earning and managing tip income.

Because tips can be irregular and unpredictable, it can be challenging to manage your money. And because tips are often paid in cash, it can be too easy to let that cash just fritter away …

If you or someone in your household earns tips, consider these “tips” on managing your money:

1) Get a Calendar. Each day that you earn tips, write down the tip money that you earn. If you earn tips at two different jobs, list each job’s tips separately. At the end of the month, add up the month’s tips for each job. At the end of the year, add up the monthly totals, and then add your wages to get an accurate picture of your annual income. This task may sound like a burden, but it’s an easy daily habit that will become addictive.

2) Consider the Day. By tracking your tips each day, you may begin to see patterns. Maybe Wednesday brings the highest tips of the week, or maybe Saturday isn’t as reliable for tips as you thought. This can help you plan more strategically, if you have to take a day off.

3) Compare the Months. Once you have several months of tips recorded, you can see how they compare. Is January slow, but June is lucrative? Is October the best month of the year? This information can help you make decisions next time you want to plan an extended vacation.

4) Put Yourself on an Allowance. Don’t allow all your tips cash to float in your wallet where it can be spent too easily. Deposit your tip cash regularly, or stash it at home in a safe place until you can make a weekly deposit. And watch those after-work temptations—it’s too easy to drink away your tips at the bar instead of going home for a healthy meal.

5) Track Your Spending. Whether you make purchases in cash or on a debit or credit card, bring home the receipt and track your spending for the month. This includes any spending on after-work refreshments before you get home from work. You may be surprised to see where your money is going, and you may find yourself motivated to make changes.

6) Plan for Emergencies. Because your income will vary from month to month, make it a priority to have an emergency fund stashed away for when a lean month or big emergency strikes. A great month for tips is not the time to blow all your spare cash—make sure a big chunk goes into savings. How about half?

7) Consider the Averages. Once you have more information about your spending, you can more easily plan for expenses that only come once or twice a year (such as vacations, holiday spending, an annual insurance premium, or a big repair). You can divide your annual income by 12, to get your average monthly income, and also divide your annual expenses by 12, to get your average monthly expenses, letting you know how much you should set aside per month for those big annual expenditures.

8) Pay Yourself First. While you’re setting aside money each month for those big annual expenses, don’t neglect to set aside savings. Because service industry employees may have less access to 401k or other retirement plans, it’s especially important to save in a Roth IRA on your own. In 2013, you can stash $5,500 in a Roth IRA if you’re under 50, and $6,500 if you’re over 50.

9) Try an Experiment. Find the month in the past year with the lowest tip income, and imagine that income will be your typical income every month. Create a spending plan (including lots of savings) based on that income. You’ll likely have to trim spending in several areas to make this work, but you probably won’t miss most of what you cut back on. Next consider which of these cuts you’ll actually make in the coming year, to boost your savings and debt repayment.

10) Think Long-Term. Employees in the service industry often retire due to health concerns earlier than white-collar workers who sit at a desk all day. And yet, service industry staff tend to have fewer resources saved for retirement. Don’t let this be you! Take charge, and plan to balance a fun life now and a good life in the future.

Thinking long-term especially makes sense in the context of larger American industry trends. With the restaurant industry projected to remain the nation’s second-largest private-sector employer during 2016, according to the National Restaurant Association, with a workforce of 14.4 million workers, managing tip income is expected to remain increasingly relevant as the current decade progresses.

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