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Irregular Income? How to Budget With a Changing Paycheck

September 1, 2020

As businesses continue to lay off or furlough employees amid further economic closures, many Americans—particularly frontline workers—face unstable work schedules, and irregular incomes. Being able to manage money and budget with a changing paycheck is an important skill to have.

A major study into the economic impacts of COVID-19 found this recession is largely driven by reduced spending at restaurants, bars, and service businesses that require in-person contact. Led by economist Raj Chetty, the study revealed that revenue in some of the nation’s wealthiest ZIP codes dropped by 70% as a result of the pandemic. Chetty explained, “reductions in spending by the rich have led to loss in jobs mostly for low-income individuals working in affluent areas.”

Obviously, this has a big impact on hospitality workers who regularly face the public, such as those in tourist areas, business parks, and downtowns. As a result, many workers are cobbling together income by picking up reduced shifts, side gigs, or whatever they can find to meet basic needs. So, how do you manage money when living on an unstable income?

7 Ways to Manage Money With an Unstable Income

If your income is unstable and irregular, knowing how to budget with a changing paycheck can help make managing money during a pandemic-induced recession a bit less stressful.

1. Create a bare-bones budget

The first step to creating a budget with a changing paycheck is figuring out what you absolutely need to get by. A bare-bones budget (sometimes called an ‘emergency budget’ or a ‘crisis budget’) is a budget that cuts your spending down to only what you need to survive: food, shelter, phone, necessary insurance, and debt control. It’s a minimalist, essentials-only budget without any of the extras.

An important factor in a bare-bones budget is to be frugal without being completely unrealistic. For instance, if you’ve never cooked before, you’re not going to instantly become a meal prepper. But you can shop smart and set a defined monthly food spending limit—even if it’s takeout.

2. Check on emergency savings

If you’ve got one, dipping into an emergency savings account can be a lifesaver during periods of irregular income. Knowing what’s available, and how much you feel comfortable tapping, will allow you to make up for any shortfalls, or fluctuations, in your income.

Just remember to keep tabs on any minimum amount requirements in savings (or checking) accounts. If you plan to draw down your emergency savings to a value below the minimum the account allows, contact your bank and ask if they will waive those fees. Even better, switch to a bank that doesn’t require minimum account balances or charge unnecessary fees (like ATM use fees).

3. Watch your credit card limits and interest rates

If you’re diligent, credit cards can be used as a tool to bridge the gap between when bills are due and payday. However, you must be very careful not to start overspending on your card. This means knowing your credit limits, your minimum payment, due date, and your interest rate—while sticking to your bare-bones budget. Credit, when used wisely, can be helpful when money is tight.

The key to keeping yourself out of credit card debt is to plan credit card payments into your budget. Don’t spend more than you know you can afford, and try to pay your bill off in full as soon as your income arrives. What you absolutely want to avoid is loading up debt on a high interest rate credit card.

4. Know your other options for capital

If you’ve exhausted savings, and don’t feel comfortable spending on your credit card, it’s worth having a couple of other ways to access funds quickly:

Personal loan

A personal loan is a lump sum of money that can be used for any purpose, and that is paid back in regular, fixed monthly payments over a fixed period time. Because you’ll pay interest on the entire amount borrowed, only apply for what you truly need to get by. And make sure you can pay on time the full amount due each month. Interest rates on personal loans may be up to half that of credit cards.

Home equity line of credit

If you’re a homeowner, you may qualify for a home equity line of credit, or HELOC. HELOCs often have large borrowing limits and low interest rates, however the downside is that if you cannot repay the loan you risk signing over your house.

Family member or friend

A loan between family members can be a great way to make ends meet with minimal hassle, as long as everything is clearly laid out upfront. To put everyone’s minds at ease, draw up a plan that explains what the money is for, how and when the loan will be paid back (including how frequently payments will be made), and whether interest will be charged.

Early 401(k) Withdrawals

While the usual 10% early withdrawal fee has been waived up to $100,000 through 2020 for those impacted by COVID-19, an early withdrawal could set you back years in earned interest. However, if you are faced with immediate eviction, or bankruptcy and all other options have been exhausted, your 401(k) can act as an emergency reserve of cash.

5. Build a buffer first (add extras later)

Once you know what you need to get by and have a plan for what you’d do in a temporary cash crunch, the next best step is to give yourself a buffer.

Having cash set aside is the key to a successful irregular income budget. That way if a freelance client pays late or you weren’t able to pick up as many side gigs as usual, you won’t have to lean on borrowing to get by. Aim for getting at least a month stashed away in reserves.

Once you do, you can start to add a little fun back into the budget—streaming Netflix again, or the occasional meal out. Just because you aren’t earning a traditional paycheck, doesn’t mean you have to constantly live in panic mode.

6. Track your spending

When you don’t have a steady paycheck to rely on, you will have to rely more on yourself. If you overspend, you may not be as able to brush it off by telling yourself you’ll just skimp until next Friday.

Keep track of your spending throughout the month. You can use a budgeting app or build your own irregular income budget spreadsheet. Whatever method you know you’ll stick to is the right choice.

7. Revisit your budget regularly

The biggest part of setting up a budget with a changing paycheck is being flexible. While standard budgets rely on setting a goal and hitting it every month, budgets made for irregular incomes need to be reviewed and updated throughout the year to align with your changing work situation. Ideally, your expenses should remain the same, but as you have budget surpluses or deficits week-to-week, reassess what you can pay, where you’re falling short, and adjust accordingly.

The Bottom Line

Managing money and figuring out your budget with a changing paycheck isn’t always a walk in the park, but it can be done. Having a plan and revisiting it regularly will be two of your greatest allies in navigating this successfully.

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