How to budget when you have an irregular income

Successful budgeting relies on two important things.

  1. Organisation and Planning
  2. A steady income

But, what if you don’t have a steady income?

What if you’re – for example – a freelancer,a contractor, a temp worker, start-up small business, or a seasonal worker? You might not always know when and what the next pay cheque will be. So does that mean you shouldn’t bother budgeting?

In fact, we think budgeting in these circumstances is more important than ever.

To do this successfully you need to get to grips with your basic expenditure. These expenditures may fluctuate slightly from month to month, but by setting a baseline you know how much money you will need and where you can make savings if you have an unexpectedly low month. This is an upside down approach to those who have a consistent income, but it’s still a smart way to manage your finances.

Your basic expenditure is made up of the 3 pots:

  1. Fixed Costs

These are the necessities every month, like household bills, rent, mortgage and car payments – things that may change from month to month but need to be accounted for. Things none of us want to pay, but have to. You can also include the nicer things too, for example gym memberships or your Netflix subscription.

Tip: As a guide, these costs should account for about 50% of your take home pay.

  1. Flexible spending

These are expenses like grocery shopping, hobbies and entertainment. Things that may change from month to month but need to be accounted for, and as a guidance should account for about 30% of your take home pay.

With an irregular salary, you need to calculate the lowest possible amount you can spend in this category. So that means planning to shop at bargain supermarkets, using offers and vouchers and cutting out extra where possible. Then, if your income is unexpectedly high, you can still treat yourself.

Tip:  Not having an overdraft will mean that you’re not tempted to spend money you don’t have.

  1. Savings

If you have a more stable income, you should plan to put aside 20% of what you are likely to earn for your financial goals, such as paying off a debt, saving to redecorate the bathroom or next month’s bills. 

This is, of course going to be more of a challenge with an irregular income, but it isn’t impossible.

Make the most of seasonal bonuses and monthly fluctuations, and save anything you can straight away.

The key to successfully budgeting without a consistent income lies in prioritising your flexible spending. Your first priority will always be to cover the fixed costs and then, ideally, put savings aside before choosing the more important flexible expenses. That means you may have less cash to have some fun some of the time , but you should always be able to cover the costs you need to.

Choosing a banking option which makes it easy to manage your money online will help you to budget better. With Arro Early Access, managing your finances is straightforward and it puts you in control of your finances, wherever you are. Get your Arro Early Access account now.