If you’re a shift worker, self-employed, or have a second job, then it’s likely that you have a varied or irregular income. This can sometimes make budgeting or saving a little bit trickier, especially with most advice being geared towards those with salaried roles.
But instead of thinking of saving as ‘tricky’, really, we should consider it to be ‘tailored’. Finding an approach that works best for you, designed around when and how much you get paid. By being more active in your approach to saving, it can help everyone from seasonal workers and freelancers to nurses and entrepreneurs have a better relationship with their money.
What goes out
Before you can even think about how much you want to save, you need a very clear idea of how much you’re spending each month. Just because you earn a variable amount each month doesn’t mean that your essential outgoings are likely to change all that much. Think about things like your:
- Mortgage or rent
- Utility, internet, tv bills etc
- Travel costs
- Food shopping
If you regularly overpay your mortgage so that you have more leeway to underpay, it’s a good idea to budget for the average amount.
Once you know exactly how much your essential outgoings are, working out how much you have left is simple subtraction. For example, if your outgoings are £800 and your incoming for that month is £1,200 then you’ll have £400 left – if your incomings are more the next month and you have £1,800 then you’ll have £1,000 left.
As this amount is likely to change each month, it’s important to be flexible with your savings plan and to take an active approach to your money. It could be worth taking a closer look at each payslip – not only checking that you’ve been paid correctly but also doing some quick mental math to understand how much money you’ll have left after bills.
Work out your budget
Knowing what’s leftover is good but putting a budget in place is great. Budgets let you maximise how far your money goes by assigning each pound to something specific – whether that’s a trip to the pub or investing in an ethical pension.
With an irregular income, you might want to consider budgeting for your lowest monthly income, as that’s when times are likely to be the tightest. Doing this will help keep your major costs covered and will make it easier to scale up on months where you have more money.
If your money changes significantly seasonally or on a job-by-job basis, then you may want to budget by dividing your yearly income by 12. This will provide a rough monthly budget and help give you an idea of how many months a large payment will pay your bills for.
If you’re self-employed or have large seasonal changes, then it’s important to think ahead. Budgeting can provide an idea of how long that money might last, but you’ll also need to consider other events within the year when your outgoings may be higher – for example, Christmas, annual bills, or a family member’s birthday.
When your income is irregular, planning for much longer periods may actually be easier than trying to condense down to a monthly basis. It could be worth trying to plan to your payment pattern – for example, holding money back for bills later in the year, putting more into your emergency savings, or even increasing your pension payments for a few months of the year.
Split it up
Psychologically, it’s a lot easier to spend money you can see than money you can’t. If you find yourself spending money because you know it’s there, then it may be worth thinking about setting up a separate account for your savings.
This doesn’t have to be anything too special if you’ve only just started savings, as most high street savings accounts are offering very low interest rates at the moment. But as you build up this amount it may be worth looking around for other options.
How you choose to split your money will come down to personal preference – you could just have a bills account; or perhaps you want to set up a fun fund and a savings account too; or you could keep it simple with an everyday account and a savings pot.
Set some goals
Saving for the sake of saving can be very disheartening. Why not set yourself some goals?
You might also want to save for specific things, like holidays, new cars, a house deposit, or refurbishment, or maybe even put money away for your retirement. What you save for, and how you save, is up to you – but putting achievable goals in place could help you get there faster.
Helpful tip: set yourself small goals that are easy to achieve and give yourself a realistic next goal based on the one you’ve just achieved. This can help to keep you motivated and make your saving journey fun.
Build in a buffer
With irregular incomes, having a cash buffer can be a lifesaver – especially as you might go a few months without being paid. Normally, it’s recommended that people build an emergency fund that can pay for between three to six months’ worth of bills. With an irregular income, you may want to increase this amount further, as it could act as your plan B when money is slow.
Similarly, having a large cash buffer could allow you to balance out your monthly payments. For example, say in three months you get paid £3,000, £1,500, and £2,000 – you could aim to put away more during the £3,000 month and take more during the £1,500 so that every month financially feels like the £2,000 month. It could be worth looking back over your books to work out what your average monthly payments are and see whether this approach could be feasible.
Find a place for your extra cash
If you’re regularly saving, then you may build up more cash than you need, which means that you could be looking for somewhere to put it in order to make it work even harder. With most savings accounts offering very low-interest rates, you may be thinking about investing to unlock more potential from your money.
One option could be to open an Investment ISA and save up to £20,000 tax-free, each tax year. By putting your money in an ISA, it won’t be taxed for capital gains or income tax, letting you keep more of your money. Or you could open a personal pension and get tax-relief while saving for your future.
At Wealthify, we make investing a piece of cake – all you need to do is choose how much you want to invest and pick an investment style that suits you. There are no regular payments that you need to make, and you can invest as little or as much as you want, allowing your investing journey to work well with your irregular income pattern.
Your tax treatment will depend on your individual circumstances and it may be subject to change in the future.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.