How to budget for an irregular income
If you’re self-employed, working on a zero-hours contract or leading life on someone else’s funds or government grants, your income might vary each month. Find out more about how to budget well when you have different amounts coming in each month.
Budget for your lowest monthly income
If your income varies, it can be tempting to budget as if every month will be a good one. But this can leave you with not enough if you have a bad month.
A good tip is to budget for your lowest monthly income – at least you’ll always have the major costs covered. Then, if you have a good month, you can revise your monthly budget up or put the extra into savings.
Or you can total up all your outgoings over the last year and divide it by 12. This will give you an average monthly income.
Budget for your outgoings
You might not know how much you have coming in every month, but you should have a good idea about how much is going out – and this is a good place to start.
Make a list of all your important regular outgoings. This includes:
- Rent or mortgage
- Travel costs
- Mobile phone
- Electricity and gas
- Insurance
- Council Tax
- Food.
This might not be perfect, but if you know how much is going out each month, you can budget – based on how much is coming in.
This is a good way to identify where you can cut back.
Make sure you can cover regular bills
When you’ve worked out how much you have going out, you need to be sure you can cover these costs every month. If not, you can easily be charged for going into your overdraft, or face getting into debt.
If you’re worried about dipping into money meant for these bills, you might want to set up a separate account for your regular outgoings. You can then use it to top up in a higher-income month. This way, you’ll always know the money is there to cover essential expenses.
Think ahead
It’s important to factor in seasonal changes in income, particularly if you’re self-employed. In some industries, Christmas is a good period. While in others, the holidays are a slow time, with little income coming in.
You also need to be aware of times when your outgoings will be higher. For example, around Christmas, or in months when there are birthdays or annual bills due, such as car insurance.
Build an emergency fund
If you have a good month, or a month when you spend less than expected, avoid the temptation to just spend the extra cash.
Try to build up an emergency fund to cover unexpected costs and get you through times when your income might be lower.
It’s good to have three months’ essential outgoings available. But even having a month’s income saved will protect you against income shocks.