Hi friends, today I’ll host an amazing guest post from my friend Ms. FOGA. She’s one badass lady who lives in Florida and wants to be financially independent. Since she started FOGA, she and her husband have paid off all their debt (except the mortgage) and maxed out both their IRAs for 2018 & 2019. She has been on this journey for a little over a year and is taking it one day at a time.
She is living with an irregular income – which is so different from my current situation. Every month I get the same paycheck, no matter how many hours I work or how much money I bring in for the company.
There are many peeps who are living with an irregular income, and I’m happy that Ms. FOGA is helping you to stay on top of your irregular income game. She shows that despite living with an irregular income, you can work towards becoming financially independent and reach your financial goals!
Stop Telling Me To Automate My Finances
Hello Radical FIRE Readers! I’m Ms. FOGA, and I blog over at From One Geek to Another about my journey to financial independence.
Since I started on this financial independence journey, I keep seeing this bit of advice: “Automate your finances! This is essential to your FIRE/Finance journey!”
It’s a great thought process. You set everything up, and then all you need to do is make money and watch it all happen. Sadly for me, that’s not an option. Why? Because I have a highly irregular income.
Due to that, if I were to automate our finances, we will wind up with overdrafts issues within two-three months flat. Automating your finances assumes that you get paid consistently or that you will always have enough money in your account to compensate. We currently have neither.
How My Pay Works
I have the luxury of working in real estate, and working in real estate is fun. You help people who are making one of the most significant financial decisions of their lives. It’s a fun, nerve-wracking, and rewarding career. All of this is great if you can handle one of the biggest cons about it: your pay is incredibly irregular.
In a perfect world, I get paid twice a month assuming I have closings at the right times. Back in March, I didn’t get a paycheck at all. Not to mention the months where I only got paid once. Hell, last year, I got a paycheck for $0.57. And that was my pay for that month.
Thankfully, despite this big con, my job does allow me to make six figures a year. You just don’t get it in even intervals. Or in any way that makes sense.
Mr. FOGA does get paid weekly, but it’s not a big paycheck. I make about triple what he makes, so when I don’t get paid, we feel it.
So, you can understand how having a payment coming out on a set day doesn’t work for me. There may not be any money in the bank that day.
This is not fun for anyone involved.
How Do You Manage Your Money On An Irregular Income?
Since the trusty automation of all your bills will not work, you are now first to come up with alternatives. Over the past five years of this rollercoaster of a career, I’ve come up with five steps to living with an irregular income.
First, the basics:
Know Your Average Monthly Expenses
I know this step seems like a no brainer, but you would be surprised how many don’t know their monthly cost of living. 61% of Americans don’t even keep track of their money. Knowing your average expenses is essential to everything. If you don’t know how much to tend to spend monthly, you cannot plan for anything.
Know Your Yearly Expenses
Now, I know what you are thinking. I just wrote the same thing again. Yes and no. You need to know your monthly expenses since that is when most bills are due. However, your pay is all over the place, so you need to look bigger. Looking at early expenses also lets you include those quarterly, bi-yearly, and yearly expenses that you don’t always think of every month.
For us, that’s our car insurance, trash bill, annual renewal fees, POA (Property Owner Association) fees, and pest control.
Know When Everything Is Due
I cannot stress how important it is to know when everything is due. This is important for everyone, but doubly so when you have an irregular income. Since your paychecks are all over the place, you need to know exactly how much you need and when you need it to avoid the dreaded overdraft.
Keep track of this however you have to: Desk calendar, phone calendar, online bill tracker. Whatever works for you.
Now into the more complicated stuff:
Pay Your Bills Ahead of Time
This is the closest we get to automating. Since we cannot plan for a paycheck every other week, you take of everything when you do have the money. That means you pay your mortgage out one-three months. Or you can pay some of your bills yearly, biyearly, or quarterly instead of monthly. That’s why our car insurance and trash bills are paid as far in advance as possible.
Now, when the bad months come, it’s less of a freakout and more something to manage. In March, we managed to go $2700 over budget due to a bunch of things happening at the same time (yearly fees, fleas, etc.). And I had no paycheck that month. Having our mortgage and other expenses paid ahead of time made it much more bearable.
But for when that inevitably fails…
Have an Emergency Fund
The emergency will be your closest and dearest friend. On the months where you have no paycheck, this fund keeps you afloat, and you don’t have to worry.
In March, this fund was the only thing keeping us out of credit card debt. If you do nothing else in this, please have an emergency fund. Also, make sure you have at least six months of expenses in it. More if your pay is highly irregular.
Now you’re thinking, “Well, that’s all well and good, but what about saving money. This is a FIRE blog, right?” And right you are. The last thing:
Make Your Goals Yearly
Now, I know this seems right coming from someone who posts a monthly goals update fairly consistently, but hear me out.
When you don’t make money consistently, it can get horribly discouraging to look at a monthly goal. From mid-February to the end of April, I did not receive a paycheck. What would monthly goals look like during that period? Stay afloat? Don’t use the e-fund this month? That kind of sucks, and it’s hard to stay positive with that looming over you.
However, if you are looking at your goals yearly, then you can plan and project based on how much you made last year. You can make the yearly goals of maxing out for IRA ($6000), maxing out your 401K (if it’s an option), and putting X amount into investments. Then you can divide that out to the times when you know you’ll be making money.
I don’t give us many goals in February- May, but come June our goals get more involved. They’ll probably slow down around November/December though. I plan for when I know I’ll have money.
Those were five steps to living with an irregular income. I hope you found it helpful.
Do you have an irregular income? What do you do to manage your finances? Let me know in the comments!