Whether you’re a freelancer, self-employed, working variable hours, on commission or claiming benefits, earning an irregular income can make budgeting tricky.
You might not know how much you’ll earn from one month to the next or when you’ll get paid. The good news is that you’re not alone, and there are plenty of tried and tested strategies that can help you manage the ups and downs.
It’s unlikely that every tactic will suit your situation – and that’s totally fine. No matter your income, your budget should be personal to you and flexible to change. But by adopting a few key principles and practices, you could quickly gain confidence in your financial position.
Read our six practical tips for budgeting effectively with an irregular income.
Budget Based on Your Lowest Monthly Income
If your income fluctuates, it’s tempting to be optimistic and budget as if every month will be a good month. But while that positivity might help you thrive in other areas of life, you could come up short financially.
Instead, add up your monthly earnings over the past year and divide them by 12 to get an average baseline figure. Or to be as safe as possible, start with your lowest recent monthly amount. You’ll need to estimate this figure if it’s your first time living on an irregular income.
Budgeting for your smallest amount means the only way is up. Then when you do have a good month, you’ll have spare money to put into savings or for other purposes!
List Your Outgoings
Even with an irregular income, your key outgoings are likely to remain consistent from month to month. Look back through your recent spending patterns and make a list of essentials such as:
- Rent or mortgage payments
- Electricity and gas bills
- Council tax
- Your mobile phone contract
- Necessary travel costs
After this, you can start to add regular but non-essential outgoings like TV streaming services, meals out and clothes. This process could help you spot opportunities to cut back – do you have any unused subscriptions, for example?
Prioritise Your Essentials
The next step of budgeting is to start allocating your income to your different outgoings. But with an irregular income, you might not be able to enjoy the non-essentials every month. Aim to cover your needs before your wants to avoid getting into debt and damaging your credit score.
Moving money automatically is an easy way to take care of your essentials. Direct Debits take minutes to set up and can guarantee that you’ll transfer an agreed amount of money on a set date every month.
If you have a Suits Me account, you can also use our envelopes feature to automatically set money aside for regular bills and payments. This way you won’t accidentally spend money that you need for your essential expenses.
Plan for Predictable Ups and Downs
The problem with irregular incomes is they’re unpredictable. Yet many still follow predictable patterns, particularly if you work in an industry that’s affected by seasonality.
Some might earn more in the build-up to Christmas, for example, while others may find income a little slower around this time. Map out the seasons or months that are traditionally strong or slow in terms of income and adjust your budget accordingly.
The same goes for times when your outgoings are usually higher. Perhaps you know lots of people whose birthdays fall in the same month, or you have annual bills to account for such as car insurance.
Build an Emergency Fund
It’s right to celebrate a good month if you’re self-employed or earning extra income in other ways. But it’s important to build up an emergency fund before splurging it, as it’s this fund that will help you live a more stress-free life on a fluctuating income.
Experts recommend saving the equivalent of around three to six months’ worth of expenses. Doing so will help you fill in the gaps when you have a slower month or a disaster strikes, such as your boiler breaking down.
Building savings from nothing can be difficult, however. Depending on your situation, different ways to build your fund include:
- Automatically setting aside a portion of your baseline income each month
- Selling items you don’t need, like clothes, electrical devices or furniture
- Allocating extra or unexpected income to your savings, such as tax refunds
Keep Tweaking Your Budget
Whether you have an irregular income or not, the key to effective budgeting is staying on top of it and adjusting it to reflect your current situation. Your budget should evolve with you over time – not be something you create once and forget about.
After a few months or a year, for example, you may find that your average monthly income has changed. Or perhaps your outgoings are more or less than they were before if you’ve moved home or changed your lifestyle. Either way, make sure to check in every month and tweak your budget so it’s always as reflective of your situation as possible.
Use Suits Me for Help with Your Budget
Knowing how to budget for an irregular income takes work and practice. But if you can follow some of the tips above and stick at it, you could soon find yourself in a better financial position.
If you’re a Suits Me customer, make sure to take advantage of handy features like Direct Debits and envelopes. You can also track your recent transactions and see statements through our mobile banking app.
And if you’re not signed up to Suits Me, it’s good to know we won’t ask you for proof of a regular income just to open an account – unlike some traditional banks.