What is a variable income?

There are many people that may be living on a variable income. Those who are self employed, those who work varying hours each month (like on a zero hour contract), those with multiple jobs or those who often work overtime or extended hours. By not knowing how much money is going to drop into your account each month, it can make it difficult to create a reliable budget and stick to your savings goals.

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So, how do you do it?

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Step 1 - Review the last 6 months

Look through your bank transactions over the last 6 months and track your income, expenses and outgoings. This may be time consuming but it’s the easiest way to get a realistic view of what you earn and what you spend, rather than taking a wild guess and dipping into your savings every month.

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Step 2 - Base your Budget on month with the lowest income

Now you’ve got your data, it’s time to make the plan. Look at the months where you earned the lowest amount and base your budget around that. Alternatively, if your income is steadily growing then base the budget on the income of the month before - if it’s June and you’re budgeting for July, then base your income on May. Whichever you choose, always underestimate your income so that you can stay in control of your finances.

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Step 3 - Plan Ahead

When it comes to creating your budget for the month ahead, make a note of all of your upcoming events for that month - birthdays, days out, events. No month will be the same, so you will likely need to adjust your budget each month, assigning differing amounts to each category. Consistency is key, but that doesn’t mean always putting the same amount into every sinking fund and savings account - it means always saving, whatever that look slike each month.

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Step 4 - Designate your Excess

By planning your budget with the lowest possible income you’re expecting, it means that some months you may luck out with an excess. An excess means having money leftover after you’ve completed your budget. While that may seem exciting and you might want to go on a payday shopping spree, it’s best to have an idea of where you want that excess to go each month, before the money even gets there. For example, you could say that anything you earn over the expected amount goes straight into investing.  

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Bonus - Build a Bigger Emergency Fund

Jobs with varying incomes mean that a consistent cash flow isn’t guaranteed or for some, any income at all. This means an Emergency Fund is more important than ever. It may be a good idea to aim for a higher amount, say 6-9 months expenses, to provide you with more reassurance should your income not reflect what you were expecting. Unfortunately, jobs which come with a variable income are not always the most stable, so it’s even more important to prepare for the unexpected.

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