If your wages arrive with all the regularity of the British sunshine, you are a part of a growing cohort of people. Official figures show that around a million people in the UK are on zero-hours contracts, while four million are self-employed. Irregular income is often the starting point of money management in the UK and that is tricky.
If your pay goes down by 10%, it may mean your disposable income that month is halved. It is disproportionate. The good news, though, is that you do not need perfectly predictable wages to have a predictable plan – you just need a system that is built around your worst month, not your best.
Before you get clever with averages, work out what it actually costs to meet your essential living needs. List your essential expenses like rent/mortgage, council tax, utilities, food, travel, minimum debt repayments and so on.
Build your budget planning framework around your lowest realistic income (if you use averages, but have volatile earnings, then high variance can come to bite you). If your income fluctuates between £1,600 and £1,900, assume a baseline of £1,600. This becomes your survival budget.
Once you have established the income you need to get by, you can create a fallback plan for the slow months while being more flexible in the months when you get higher pay.
A survival budget will keep your bills covered, but it means your standard of living (disposable spending) can fluctuate month to month. So, the next step is to flatten the curve with a buffer (separate from your emergency fund).
1 in 10 UK adults have no cash savings and 21% have less than £1,000 to fall back on. This is concerning for those in stable employment, but it is even more worrying when factoring in no income stability. To mitigate this, start by skimming off £50 or £100 from your good months to a pot labelled “buffer” and then feel no guilt about dipping into this during your low-income periods.
Having a volatile income can lead to chaos if the impulse spending during the good months forms a pattern that is difficult to get out of. The antidote is bank account budgeting, which splits your money into separate bank accounts or pots to cover:
This helps protect your regular daily expenses, but your other challenge with volatile income is seasonal costs, like insurance renewals and Christmas. Winter bills are a particular concern in light of Ofgem’s report of UK domestic energy debt reaching £4.4 billion.
This is where setting up separate sinking funds becomes helpful: small, but regular monthly contributions to pots labelled “Christmas”, “Car service”, “Heating” will help you absorb those seasonal costs when they come up.
With a variable income, it can be tempting to borrow money in the low-income months, but that can be a risky game, especially if next month is also slow. The safer approach is responsible borrowing: using credit only when it is really needed, not to enhance a lifestyle.
In the UK, a credit line product can work well for irregular earners. Having a credit line account allows you to only borrow what you actually need and you can make the repayment in full when you next have a strong income month. Remember, only borrow what you can repay based on your earnings in a realistic future month and only borrow when you need to.
Irregular wages do not have to be a problem, because we can build structures around them to make budgeting and spending more controlled. By having a buffer, separate bank accounts, a sinking fund and a credit line to fall back on, you can bring structure and predictability back into your life.
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