27 – How to Budget on an Irregular Income

Wayne Kay  0:04  

Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and in today’s show, we’re going to be learning about living on an irregular budget. People who are seasonal employees, and what they can do. 

My guest today, Leigh Taylor from LCTaylor, Licensed Insolvency Trustee in Winnipeg, Manitoba. Leigh, thanks very much for being here.

Leigh Taylor  0:30  

Well, thanks for having me, Wayne, it’s a pleasure.

Wayne Kay  0:32  

We always love talking about money and debt and helping people out. It’s one of those things that when you see people – with this show – that their lives change and they understand that they don’t have to be scared anymore. That there’s actually some place they can go for some actual real truth. Because there’s so many misconceptions out there, regarding debt. I’m sure you’ve heard just about all of them.

Leigh Taylor  0:54  

That’s true, Wayne. And part of the problem is, between the information you get on television, radio and the internet – the information comes from all over the place. Maybe you’re listening to somebody who solved their problems with American Bankruptcy law, well that doesn’t necessarily apply up here. So misconceptions are easy to come by.

Wayne Kay  1:14  

Alright, so we’re going to try to not bring you the misconceptions. But we want to bring you some of the realities, especially if you’re in Manitoba. And that’s where Leigh is based out of. So let’s talk about irregular income versus regular income, obviously a paycheck every two weeks.

Leigh Taylor  1:31  

Yes, that’s a lot easier to deal with. In a lot of cases – when it’s irregular and there’s an awful lot of people with the regular income out there, it’s a little more difficult. Because typically, somebody will have a good week, pay day will come along, and they’ll do just fine. They’ll go out and celebrate and have a good time. 

The next week comes along and much the same sorts of expenses, but their income has decreased. they end up running short, borrowing from short term lenders, payday loan places or whatever. And that’s just the beginning of a slippery slope. Before you know it they can’t meet their debts as they become due and it becomes a bigger and bigger problem.

Wayne Kay  2:14  

So let’s start. I just wanted to add that when we talk about these seasonal employees, who are we talking about?

Leigh Taylor  2:22  

Well, there’s a very broad category of these kinds of situations, a lot of self employed people. Sales go up, sales go down, their income is based on how much is left over at the end of the day. And that can often be irregular. 

Another category is real estate agents. They can have really good annual incomes, but their income may be based on three or four months of the year when they have high sales. The rest of the time, they may not make any money at all, which is true of most commissioned people. 

A lot of people may get a base salary, and then they work on partial commissions and their commission cheques are not always the same. If you start spending your commission cheque before you get it, you may get a surprise when it comes in slower. 

But there’s lots of others – construction workers, whether it’s carpenters or drywallers, or whatever work from project to project. And while in a lot of cases, they’re fairly busy, there could be a period of time where they don’t get a job right after they finished the last one. So you have two or three weeks til the next. That’s okay if it doesn’t happen very often. But when that starts to build up, and you find out that you’ve used your savings to get by the last little slump – you don’t have any savings left the next time. 

Shift workers, even outdoor workers –  if it rains, you may not work that day. If you’re a landscape gardener, you have to somehow make it up. Run into a bit of a rainy season and suddenly you find that you’re way behind on your income.

Wayne Kay  3:51  

And I would imagine in the last couple of years with COVID there’s a lot of people who have been having irregular income because businesses open and then all of a sudden businesses are ordered to close. There’s nothing you can do about it. All of a sudden that income is gone. They try to replace it but for a lot of people it is not going to be anywhere near what they were making when times were good.

Leigh Taylor  4:15  

Well, that’s true in a lot of situations. COVID has thrown a real monkey wrench into a lot of people’s lives with their financial situation. Most people, young people that haven’t been able to build up equity in their house or savings. They have smaller savings accounts and are off work for a period of time, it’s easy to use that up. 

And somehow the response of the government to the COVID problem in the last year or two has not been helpful in the long run. It’s all well and good to top up EI so that people who are out of work can have income. Or giving CERB income to people that don’t have any other income but they seem to forget that that’s taxable. The tax was never taken off on those things. Come the end of the year, they’re going to have to file a tax return and they’ll owe tax on that. 

A lot of people, this was all well and good to be on unemployment insurance and CERB and everything. But now, that’s all run out. They’re having trouble getting back to work and finding a job. And they haven’t changed their spending patterns and their credit cards have caught up with them. They’re running into real serious problems because of this irregular income situation.

Wayne Kay  5:26  

Yes, that’s tragic. So what are some of the important things that we need to know if someone’s in this situation? What can they do to manage their finances?

Leigh Taylor  5:37  

Well, managing finances – the first basic tool in anybody’s finances, good budgeting. But good budgeting is really doubly important when you have irregular income. As I mentioned before, you can have a good week and you go out and spend your money and next week, it’s not so good. You can’t easily cover your expenses. That’s a common problem. 

So budgeting simply means that when things are going well and your income is up a little bit, you budget so that you put some aside for those inevitable paydays where you don’t have as much money as you need. You can rely on the good times of last payday to pay for the poor time to have this payday. So I think budgeting is probably the single most important thing to remember in handling your finances on your regular income.

Wayne Kay  6:32  

So do you suggest – I’m thinking you have to budget at pretty much the basics. This is the basics of what we need. We need to have our budget, just covering that. Forget about any of the extras at this point. Go through a full year and then start spending on extras. How do we break down that budgeting?

Leigh Taylor  6:54  

Well, budgeting has to be practical too, because you have to live with it. The first thing to try to establish is what your monthly income is going to be. And monthly is probably the best way you can tell. Your paycheque may not be month by month, it will vary. 

But how much income do you have? How much are you going to get? And you’re going to establish that. I think most people have a pretty good idea. Even when it’s irregular income, on the average, what are they going to be earning on a monthly basis? 

The second part of budgeting, of course, is to keep track of your basic expenses. And you’re probably going to need a month or two of basic expenses, simply because it’s not that easy to keep track of your expenses every nickel you spend. If you have a notebook or some sort of system to write it down, you can keep track of it. Find out where you’re spending your money. So then at the end of that point in time, when you see where you spent your money, you can sit down and decide, well, where should I spend my money? What are my priorities? 

Now, if you’re renting, and you don’t have enough money for rent, you have got a problem, where you’re going to be sleeping. If you don’t budget for food or transportation come the end of the month, you may be walking where you’re going or eating a lot of Kraft dinner.

Wayne Kay  8:13  

Which is pricey nowadays, anyway.

Leigh Taylor  8:16  

Yes, by setting those priorities, that’s when a budget starts to take shape. You can start saying, Okay, I got my list of priorities. These are the things I want to spend my money on. But this is how much money I’ve got. And it’s simply a matter of going down your list of priorities and seeing how far you get. 

Once you run out of money, your priorities are not going to make the cut. And you’re going to have to cut something out. And maybe you don’t go for coffee at Starbucks as often. Or you make a better list and start clipping coupons when you go to the grocery store. Or do a little more walking and bicycling rather than taking your car because those are ways in which you can adjust your expenses to try to come within your monthly situation.

Wayne Kay  9:03  

You know, I’ve talked a lot about almost making a game out of it –  to say here’s our Challenge of the Week. Let’s see if we can only use the car for X amount of kilometers of driving or let’s see if we can make it to work –  I love when they have cycled the work weeks. 

Something to challenge yourself. I think making it a little more fun instead of Oh no, I have to cycle or I have to do this when you’re forced to do something. It’s not nearly as fun as when you make the choice to give up something as a challenge with maybe somebody else.

Leigh Taylor  9:40  

That’s a good point. It really is. Budgeting is tough. It’s one of those things that sounds really easy until you get into it. And if you think that’s hard, well you have to budget with your spouse or kids and you’re trying to convince your spouse and your kids that your priorities are their priorities. Maybe that takes some of the fun out of it. But it certainly is a challenge. And it’s important, because if you’re not on that same page with your wife or your husband on budgeting priorities, now you’ve got a whole new set of problems.

Wayne Kay  10:15  

Well, and that’s often where you’re probably seeing people in the office. Because if you cannot get on the same page, and one person is spending, even though there isn’t enough money there, eventually that’s going to run out and you’re going to have a big problem that you’re going to have to solve.

Leigh Taylor  10:33  

Well, there’s an old adage that goes – a broken marriage is the biggest cause of financial difficulties, and financial difficulties is the biggest cause of broken marriages. 

Wayne Kay  10:45  

So true, isn’t it? You see this? Unfortunately, this is reality when it comes to what you’re talking about. So the big B word is critical. Now, all of a sudden, maybe circumstances change. For better or for worse, let’s discuss what that looks like.

Leigh Taylor  11:04  

Well, you know, that’s almost inevitable in life, isn’t that right? There are things that are going to change. Your priorities may change. You could find out that your family situation changes, your wife suddenly tells you you’re having another kid. I think you’d better start thinking about how you can change your budget. Or your kids start growing up and one truism about children is that they  don’t get cheaper as you go along.

Wayne Kay  11:34  

That’s so true. I was just talking with a mom and her son is in high school and the daughter –  they’re both in high school. One’s in grade 12. I think one’s in grade 10. And she said, this is the most expensive it’s ever been for us. 

Leigh Taylor  11:54  

So then they go to college, and they get married. But you do the best you can. The question is, how do you deal with that? I think that’s important when you start your budgeting that you anticipate that there are going to be changes. 

And those are things you adjust for – things like annual expenditures. If you don’t build in the fact that you’re going to have to insure your car next February, you’re going to get a bit of surprise when you get a $600 or $1,200 bill for car insurance. And it’s not in your budget. 

Things like time –  expenses, short term, and long term goals for that matter. If you don’t budget for them, you’re going to find out that you’re going to be missing opportunities that you don’t want to miss. Emergencies – you know, what is it death, taxes, and unexpected expenses are the three certainties in life. 

If you set aside some money, and it could be that you put $25 or $50 a month into an emergency budget until you get up to $800 bucks or $1,000 bucks set aside and hope that you don’t have an emergency in the meantime. But then if you’ve got that set aside, and coming home on a Friday night and not feeling like making supper and wanting to order pizza – is not an emergency. It may seem like it at the time.

Even putting aside a little bit into savings. Because while savings may not be seen as an absolute necessity, there’s nothing better to relieve stress than knowing you’ve got a few dollars in the bank for emergencies or just stress, stress relief, all that sort of stuff. So if you can build those sorts of things into your budget, then you have a little bit of flexibility.

Wayne Kay  13:48  

Yes, I want to say that it’s surprising how fast that $25 a month – when you’re looking at it, and it’s automatically coming off your paycheque. It’s amazing how fast that will build.

Leigh Taylor  13:59  

Yes, and if you keep it in the cookie jar, you’re going to spend it when you run out of cookies. But if you have a little account at a credit union or bank that’s not just sort of across the street from you, and you put it into a special savings account there. 

You can have it automatically taken out of your chequing account and put into savings in most of the institutions. And you know, suddenly you’ll get a bank statement from your savings account at the end of the year that says that suddenly you’ve got an extra five or $600 in there that you didn’t count on as far as your monthly expenses go. And that’s a real stress reliever.

Wayne Kay  14:35  

Yes. Long term financial objectives. How do you even look at that when you’re dealing with day by day or week by week or month by month budget issues – where there’s more month than there is paycheque? How do you focus as well on long term financial objectives?

Leigh Taylor  14:55  

Again, if you don’t start saving for them, it’ll never happen. You just can’t count on winning the lottery in order to go on that dream vacation someday. But if you put aside a little bit of money, even if it’s just a little bit of money, something that you’re not going to miss, but you put it aside steadily. 

You know, if you skip going to Starbucks on your way to work and you save yourself $4 on a fancy cup of coffee, well, suddenly you’ve got $20 a week that you saved. Times that by 52 weeks a year. Now you’ve got a few dollars set aside. 

And you do that for a period of time – suddenly you find out, and maybe it’ll take 10 years, but now you’ve got the money for the 25th anniversary. You want to take your wife on a cruise or more practically you put it aside and you put it into an RRSP. And you find out that when you get to your 55th birthday, and what was that old expression – Freedom 55 or whatever? Well, I’ve heard about it. 

Most people never get there, you know, but it’s a good – freedom’s good. But you’ll never get there if you don’t make some sort of plan for it. So long term goals – because they’re long term, don’t take a lot of money. Set aside money – if it’s like I said $15 or $20 a week. Most people can give up frivolous things and get there without too much trouble. And that’s where the long term goals can be accomplished.

Wayne Kay  16:36  

Yes. Okay. What’s your final words of advice here for living on an irregular budget?

Leigh Taylor  16:42  

Well recognize what the problems are first, and then I’m a big fan of budgeting. If you can’t do it on paper, you can’t do it. But if you can do it on paper, you can accomplish a lot of not only goals, but avoid a lot of pitfalls as well.

Wayne Kay  16:56  

It’s great advice, Leigh. Thanks so much for being on the show today. My guest today Leigh Taylor from LCTaylor, Licensed Insolvency Trustee and Winnipeg, Manitoba. If you’d like to learn more or you want to schedule a free consultation with Leigh or the team, you can go to LCTaylor.com. 

And that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from and of course, for more information, you can always check out debtmatters.ca. I’m Wayne and I really appreciate you listening and spending some time with us today.