Irregular Income and the Struggle to Budget

In today’s post-pandemic era, many Americans are facing significant financial challenges, with inflation affecting a third of the population and a record 55% indicating that their finances are getting worse.

One of the main obstacles is irregular income, which makes budgeting an uphill task for those struggling to make ends meet. For instance, consider Joshua, a person working three different jobs – driving for rideshare companies, picking up bartending shifts, and working as a customer service representative. Despite his busy schedule, Joshua feels broke and unsure about how to effectively budget due to his unpredictable income.

According to Mary Ware, senior wealth advisor and managing partner of Carnegie Private Wealth, tracking income and expenses for a solid year is crucial to understanding one’s financial situation. This allows for a full picture of what you’re working with, enabling you to create a monthly average of what you need to earn or save to cover your expenses.

Ware recommends reviewing bank and credit card statements to estimate both income and spending. She stresses the importance of planning for irregular events, such as holidays, which should be included in the monthly budget and saved for during the year.

Domenick D’Andrea, founder of DanDarah Wealth Management, agrees with this big picture approach. He suggests starting by looking at the last six to 12 months of income, then examining the lowest income months to create a budget that covers all day-to-day necessities.

For example, if Joshua earns between $3,700 and $5,100 depending on the month, but his average last year was $4,800, and he typically spends around $4,600 per month, he could base his budget on $4,800 a month and aim to cut spending to $4,320 a month to save 10% of his average monthly income.

Alternatively, Joshua could try to cap his spending at his lowest earning month of $3,700 so he’s always able to cover the bills with what he earns that month. This would allow his savings to grow faster, but would require more drastic lifestyle changes.

Both Ware and D’Andrea emphasize the importance of having an emergency fund with several months of living expenses. D’Andrea advises, ‘I would try not to overspend during those higher earning months until you build a six-month emergency fund.’

A budget can only go so far in solving financial woes, and it’s also essential to consider bigger lifestyle changes. Ware suggests looking at the costs of commuting from job to job and cutting out one of those jobs if possible. This might seem counterintuitive, but it could ultimately lead to taking home more money with less commuting costs and other job-related expenses.

Joshua could also look to upgrade his career prospects by investing in himself, even if it means going back to school and taking on loans. Ware believes investing in oneself is always one of the best bets, and could lead to longer-term financial gains.

Expert Insights

According to D’Andrea, ‘Start by looking at your last six to 12 months of income. Once you have those numbers, you can look at what your lowest income months are and try to build a budget that, even in those months, you can cover all of the day-to-day necessities.’

Ware stresses the importance of planning for irregular events, such as holidays, which should be included in the monthly budget and saved for during the year.

D’Andrea also emphasizes the importance of having an emergency fund with several months of living expenses, advising, ‘I would try not to overspend during those higher earning months until you build a six-month emergency fund.’

Ultimately, budgeting on an irregular income requires a big picture approach, planning for irregular events, and considering lifestyle changes. By taking control of one’s finances, individuals can feel more secure, confident, and in control of their financial situation.

As Ware notes, ‘Investing in yourself is always one of your best bets.’ By prioritizing financial education and making smart financial decisions, individuals can achieve their long-term financial goals and create a more secure financial future.