Sense & Centsibility Blog

4 Budgeting Tips for Tipped Employees

Before and during college I worked in the service industry. I didn’t worry much about budgeting since I didn’t have kids or a car payment (I took the bus everywhere), and not much to worry about as long as my rent, electric, and phone bills were paid. I didn’t have to spend much on food since I got free meals at work - so much of my money went towards whatever I wanted it to. Sounds great, huh? It was, until I would get sick and miss a week of work, or business was slow and I didn’t have all my rent, or I lost my job unexpectedly due to the restaurant closing down. These events could, and did, create a crisis out of what could have been a manageable situation had I been wise and built an emergency fund.

About four years after graduating from college I found myself unemployed. I was ineligible for unemployment but thankfully, I had savings this time. It lasted for four months at which time I went back to working as a server. I didn’t know what I wanted to do next so I decided to take some time to figure this out. This time things were different than before college because I was a single mom of a seven-year-old. I had responsibilities and had to ensure they were met. But how could I budget if I didn’t know how much I was making? Through trial and error I discovered this is what worked best for me.

1. Track your earnings

As anyone in the service industry can tell you, there is no way to know how much you will make in a shift. Some shifts you leave with more cash than you could have imagined and others you show up for work and leave with nothing in your pocket because you are cut before you even get a table. Hopefully, you have bus fare or gas to get home! Writing down what you earn, not what you claim, but what you actually make in tips can help you understand how much you are actually earning each shift. This will then allow you to figure out an average expected income. It may take several months of tracking to figure this out, but will be well worth it in the end.

2. Track what you spend

Part of the problem with earning tips is it’s really easy to spend the tips as soon as you get them. The best budgeters are people who get paid once a month. As it goes, the more frequently you get “paid” the harder is to budget your money – and tipped employees “get paid” per shift, essentially (do you really count your paycheck?). The first step of managing your money is to know where it is going. While you may know how much your rent, cell phone, and credit card bills are, do you know how much you spent on post-shift drinks? Or cigarettes? How about groceries, going out to eat, clothes, or gas for your car (or bus fare)? These are the areas where most people are “bleeding” money. Write it all down – you may be really surprised at what you discover!

3. Do the math

Once you have an average of how much you are making and know what you are spending, you may need to set some limits on what you will spend (or pick up some extra shifts!). You can figure out how much you need to set aside from each shift to cover your fixed bills by adding up your monthly costs, multiplying them by 12, and dividing that number by the number of weeks in a year. For example, if your monthly bills come to $1200 each month, that is $14,400 a year and $277 per week. If you work 4 shifts per week you will need to set aside a minimum of $70.00 per shift. Whatever is left can be used for food, gas, fun.

4. Save, save, save

A word about savings: use your paychecks (if you get them), for savings. If you earn enough in tips, you may not get a paycheck. So make sure that you have a plan for saving each month. Remember: the rule of thumb is that you want 3-6 months of basic living expenses set aside in an emergency fund. Based on the numbers above, this is a minimum of $3,600 - $7,200 in savings. If you saved $150 per month you could reach this minimum in two years. Using the formula above, this would mean that you would need to commit $35 a week, or $8.75 a shift to savings! How simple is that?  

Even if you can't save $35 per week right away, start out with $35 per month. Then, increase to two times per month and keep increasing until you are saving $35 weekly. Sometimes all it takes is a little planning to create big change...and every little bit helps!

If you would like more tips for budgeting, reducing debts, building up your emergency fund, and/or managing student loans, call 1-888-577-2227  to schedule your appointment today...Or get started right now with our easy and efficient ONLINE COUNSELING.

Author Shannon Doyle is a Certified Financial Counselor with LSS and specialized in Budget/Debt Counseling.