Corey Retell feels like he’s playing catch-up.
The 29-year-old spent much of his post-college years in financial limbo, with stints working gig economy jobs to pay down debt bookending a fulfilling, if not very lucrative, few years in the Peace Corps.
These days he’s on firmer footing. In addition to his job at a Washington, D.C.-based economic nonprofit, which pays him $75,000 per year, Retell serves in the civil affairs branch of the Army Reserve — a gig which brings his total annual income to about $82,000.
Living in D.C. isn’t cheap, but Retell maintains a tight budget and invests aggressively; he stashed 21% of his pre-tax income into retirement and brokerage accounts in June. Complicating matters, however, he says, is that his military pay doesn’t always come in when he expects it.
“It’s inconsistent. It’s rarely on time,” he says. “It’s something I’ve learned in the last six months to a year to not rely on for me and my budgeting. It’s more of a bonus when I’m able to access it on time.”
It’s a more common problem than you may think. Last year, 29% of adults had income that varied at least occasionally from month-to-month, according to the Federal Reserve Board.
If you’re among them, taking an approach similar to Retell’s is part of a sound strategy, financial experts say.
“When you’re creating your budget, try to identify the absolute low for your fixed costs, and use that to anchor your financials,” says Thomas Racca, manager of the personal finance management team at Navy Federal Credit Union.
How to deal with inconsistent income
In service of investing as much as he can, Retell runs a strict budget — even when it doesn’t always feel like he has to.
“I have been able to save more than I have ever saved in my entire life,” Retell says. “Having said that, it makes my month-to-month feel uncomfortable because I’m trying to save as much as possible. So there is breathing room, but I try to make it seem like there’s no breathing room.”
That can make things tricky if a paycheck doesn’t come in on time, or if bonus pay doesn’t come through; Retell is theoretically owed $4,800 a year as a foreign language bonus, he says, though the money has yet to hit his account.
By budgeting based on his minimum income, Retell his helping to ensure that hiccups in his military pay won’t force him into debt or derail his investing goals. It’s worth noting that his day job puts Retell on more stable footing than others, such as gig workers, who can’t always count on steady pay.
For anyone with uneven pay, financial pros suggest a few more steps.
1. Build an emergency fund
When it comes to dealing with slowdowns or gaps in pay, nothing beats having an emergency fund, says Sean Pearson, a certified financial planner and certified financial military advisor with Ameriprise Financial Services — ideally, a cash account with three to six months’ worth of expenses.
“If you’re reading this and aren’t there yet, make a plan to get to that level of savings,” he says. “Cash creates financial flexibility that turns uneven cash flow from a crisis to a minor headache.”
If you make more money in some months than others, you can separate your cash into buckets, says Melissa Caro, a CFP and founder of My Retirement Network. One bucket, she says, can operate as a clearinghouse to pay your bills and live your life while your emergency bucket is there if you can’t make ends meet.
“You just have to keep an eye on that [emergency] bucket. If it starts dripping out, you need to make sure that you’re constantly refilling it,” she says.
2. Treat your income like a business
To the extent that you can, build room in your budget for peaks and valleys, the same way a seasonal business might, says Caro. A seaside ice cream shop, she suggests, likely earns far more money in the summer than it does in the offseason.
“So I always ask people, ‘Do you think that when their cash is flowing in the summer, that they’re spending accordingly?'” she says. “The answer is definitely no.”
Caro suggests looking back over your last year’s worth of pay and basing your budget on your leanest months. Like a smart ice cream shop owner, she says, you can set aside cash when you’re making more in order to buoy yourself when things get tight.
Looking backward can also help you set aside money for big expenses that can sneak up on you, Caro says.
“You might have end-of-the-year expenses. Maybe it’s a credit card annual fee or school taxes that have to be paid. You know these are coming,” she says. “You should be budgeting for that all year round.”
3. Pay yourself first, when you can
Financial pros acknowledge some people with uneven incomes live paycheck to paycheck and can’t afford to save during leaner months.
But to the extent that you can, make savings — for both the short and long term — a priority, says Racca.
“I love the idea of treating your savings account as a bill,” he says. “Make sure that you’re paying yourself first.”
If you’ve budgeted for the bare minimum in a particular month and find yourself making more or spending less than you thought, use the extra money to pursue financial goals. Prioritize building your emergency reserves and paying down any high-interest rate debt first, says Caro. If those are covered, start stashing money away for retirement.
“Putting that third does not in any way lessen the importance,” she says. “But we have to live in the real world … a lot of times, people can’t do all three.”
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