The Smooth, a blog by Wollit

Master your money: how to manage an irregular income

Working part-time, flexible schedules, being your own boss definitely has its advantages. However, budgeting on a fluctuating income can be a challenge if you can’t predict how much you’ll be taking home each week or month.

If you’re struggling to get by on an irregular income, you’re not alone. Almost a million people in the UK are working zero-hour contracts, which means they have no guaranteed income month to month. We also need to consider the UK’s growing ‘gig economy’, making flexible work more accessible than ever before. There are now around 5 million people working for themselves in the UK, up by almost 2 million since 2001. This means that there are more and more workers in the country who lack job and income security.

It’s not easy to live month to month on wildly different pay packets when outgoings like rent, mortgage, and utility bills stay largely the same. If you’re just learning how to budget, irregular income and uncertain wages can make you want to throw in the towel altogether. But don’t give up hope – we can help you make the most out of it.

The challenges of an irregular income

Budgeting when you have a steady paycheck is simple as your income won’t change each month – you just need to decide how much of your monthly income you are going to designate for bills, how much you can spend on non-essentials such as entertainment, and put the rest to savings. It is much more difficult to plan your finances when you don’t exactly know how much you are able to spend and on what.

However, that does not mean you should not budget, on the contrary, it is even more important to budget on an irregular income! There are two key things to keep in mind when getting started.

First, plan what you can. Your income might be irregular, but probably your rent, bills, and some other expenses stay the same. Start your budgeting process from the things you know or can easily predict.

Second, stay mindful of the fact that your income fluctuates; this means not spending everything you earn in good months and holding some back to pad out those leaner times. It’s a little like the parable of the squirrel and the grasshopper; it’s important to be the squirrel, and save some of your acorns for the winter months when income isn’t guaranteed.

Getting started: budgeting on an irregular income

Budgeting on an irregular income requires more nuance compared to budgeting on a fixed income – while your friends on fixed salaries can get away with running the same figures every month, your budget will have to be a little bit more adaptable. Here are five things to keep in mind.

Look at what you can control day-to-day It is easy to think that our financial situation depends only on the bigger things in life: our background, salary or the lottery. However, your everyday spending could have more impact on your finances than a few bigger outcomes. So, instead of waiting for a miracle, start looking at what you can control.

What is your current situation? You can’t improve what you don’t understand. Budgeting makes it essential to come to grips with your finances and knowing where your money comes from and where it goes. Once you assess your current situation you will be able to make the small changes to get you to a better financial future.

Start from the past.

Look back over the previous year – if your situation is relatively similar – and calculate how much you made and spent annually. By figuring out your average annual income and expenses, you can divide this by 12 and get an idea of your ‘average’ month. This is a useful starting point when drawing up a budget, and helps you understand your behaviour with your money right now.

Save money for the short-term

Saving money for the short-term is all but essential when you’re on an irregular income. If some months you earn £500 and others you earn £2000, spending everything you make during those £2000 months will mean you can’t make ends meet during leaner months. By putting some of that excess income away when the going’s good, you’ll thank yourself when you come to need it; this is what’s sometimes called a ‘hill and valley fund’, because it’ll see you through the hills and valleys of the year.

Be flexible!

Managing an irregular budget requires flexibility. You’ll need to keep an eye on your bank balance throughout the month to make sure you’re not overspending. Sometimes, the best thing to do is to put money into different pots – bills, leisure, and savings – at the start of the month, to ensure you don’t overspend from your current account over the course of the month. You can do this easily with banks like Starling and Monzo, which allow you to allocate your money according to where it is supposed to be spent and let you spend directly from the pots.

The 3 ways to budget your irregular income

Budgeting starts from knowing where your money goes. It is important that you have a way to keep track of each expenditure, especially in the first couple of months. This means recording everything – even that Starbucks coffee you bought on a whim on Sunday morning – and you may be surprised how much you’re actually spending.

You have three ways to do this: on paper, in an Excel spreadsheet, or in a budgeting app.

Pen and paper is easy, and cheap, and everyone has access to them. Just keep a notebook open and write down everything you spend money on during the month – including bills, direct debits, and small impulse purchases. It’ll take longer to add up the totals manually at the end, but it’s quick and it’ll do the job even if you’re not keen on computers.

Pro: cheap, easy to use and you can adjust it to your preferences

Con: can be time-consuming and error-prone

If you’re looking for a more modern way to manage your irregular income budget, Excel offers more flexibility. You can add your transactions from your bank account, track all of your finances in one place, and categorize freely. You can also add in formulas to automatically calculate totals for you, and produce graphs and charts to visualise your monthly outgoings.

Pro: flexible solution, many different calculations, fast

Con: needs some Excel knowledge, needs to be manually updated

You can also budget easily with just your phone. Budgeting apps like Emma, Money Dashboard or Yolt automatically connect to your bank account, categorize your expenses and show you how you spend your money. They are mostly free, easy to use and can help you get a quick overview. However, the apps often come with their own logic, which might not make sense for your irregular income.

Pro: easy and fast to use, accessible, automatically updated

Con: not fully adjustable, often not irregular income friendly

Once you’ve tracked your expenditures for a couple of months, it’s time to tot up the totals. By calculating how much you need to cover essential bills, you can see what is the bare minimum you need to make ends meet. You could also track how much you spend on takeaways, or coffees to go. If you find you actually spend £100 on takeaways each month, it’s useful to know that, during leaner months, forgoing a few curries and pizzas could actually help your budget significantly.

Budgeting, step by step

If you’re new to budgeting, let us help. It’s not quite as complicated as it first seems.

Budget setup

The first thing you should always do is work out your lowest monthly income estimate. This is what you’ll earn during your least busy months of the year. If you can, don’t just guess it: look through all your accounts from the past year and take the lowest one.

Next, you need to know what is the bare minimum amount you need to spend to get through the month. Add these essential expenses: food, rent or mortgage payments, transport and other bills. These cover your most basic needs and hopefully your leanest months will still allow for these bills to be paid; if they don’t, you need to make sure you save money during busier months to cover your basics during quiet times.

After this, luxuries like eating out, streaming services, and entertainment can be pencilled in – but remember that on an irregular income you might not manage these every month. Life is for living, so don’t be too tight with your budget, but don’t be extravagant, either. These are your nice-to-spend expenses.

Last is the most important part of your budget: savings. When managing an irregular income, savings can be life-saving in slower months. The key to saving on an irregular budget is to save whatever you have left after you allocated enough money to cover your bare minimum and nice-to-spend expenses.

Budgeting on an irregular income

How to set up your savings

The money you save should go to three essential saving accounts.

The first is an emergency or hill-and-valley fund, which helps you to cover your expenses in months when you earn less, or if you need to spend on something unexpected (Hello dentist!). Ideally, your emergency fund should cover 3-6 months of your bare minimum expenses. So if you need at least £1,000 pounds to spend on essentials, then your emergency fund should be ideally between £3,000 to £6,000. Make sure you make a target amount for your emergency fund and stick to it. Once you have saved up enough in your emergency fund you can turn to your other saving goals.

Dreaming of a big vacation? New car? Or you just want to afford Christmas without credit? Start saving money in some sinking funds. These savings cover those bigger expenses we can already anticipate. Start putting away bit by bit what you can, and you will see how easily it adds up to your goals.

The last part of your saving plan should be a long term saving or investment account. This is ideally an account which earns interest, and you save in it for a minimum of 5-10 years. Each penny you put away here will grow in value and ensure your smooth financial future.

Each month you can decide whether you want all of your savings to go to the only one of these accounts or a bit to all of them. This depends on your priorities at that moment. If you don’t have an emergency fund, start putting more money there before starting to save for a new car. However, aim to put each month at least a bit into your long-term savings. This way you can start earning interest early on and have a much bigger return on your investment down the line. (Read more about saving and investing here.)

Make budgeting easier with Wollit

The good news is that budgeting on an irregular income does not have to be difficult. With Wollit you can easily have more predictable finances, get a boost in bad months and build your financial future. It is an ideal solution if you have an irregular or fluctuating income.

Wollit helps you smooth your finances by giving you an Income Promise – the minimum amount of money you can take home every month, based on your current earnings. If you earn below your Income Promise, you can take an interest-free cash top-up to make up for the difference. You will only need to pay this back once your paychecks improve and you earn more than normal. This way you will experience a more stable income and can base your budget on your Income Promise.

Budgeting on an irregular income with Wollit

Your monthly service fee forms part of a regulated credit agreement. We report each successful service fee payment you make to a credit agency. These payments build your positive payment history and show you honour your financial commitments which are some of the most significant factors affecting your credit score.

Wollit also helps you to build your credit file to improve your credit score. Your monthly service fee forms part of a regulated credit agreement. We report each successful service fee payment you make to a credit agency. These payments build your positive payment history and show you honour your financial commitments which are some of the most significant factors affecting your credit score.

You can also receive personalized insights into your finances, so you will know where you stand with your money at all times. It is the go-to app for people earning an irregular income and helps hundreds of people live a smoother life.

Ready, steady, budget!

When earning an irregular income, we can often feel like we are not in charge of what happens with our money. It’s like we are not the one behind the wheel – our finances depend on how many hours, shifts or client work we get.

Budgeting helps you take the reins. Regardless of how much money you earned that month, you will feel prepared and ready to make the best decisions for your finances. It will make you feel confident and empowered to achieve your goals and make the financial future you want a reality.

Make your life with an irregular income even easier – sign up for Wollit and let us smooth the bumps on the road for you.

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As a financial health startup working with a largely millennial audience Wollit has a unique vantage point on the problem. We focus on the significant proportion of millennials in volatile work. These include shift workers, agency staff, gig workers, freelancers and those on zero-hour contracts. A stable predictable income is the bedrock of financial resilience. …

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