Money saving

Tips to manage your money on a variable income

Posted 19 February 2016

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Having a variable income doesn’t mean that you won’t be able to budget or manage your money. Read on for our best advice if you’re not sure what you’ll be earning month to month.

The freedom that comes along with working freelance or being self-employed can really suit some people – having that amount of control over your career and what you do with your time can be great. Or, in other cases you might be on a zero-hours contract, not because you want to be, but because that’s the only work you can find. Either way, having an income that changes from month to month can make budgeting a particularly challenging task. Not knowing what you’re going to be earning from one month to the next can be frustrating and, if you don’t plan ahead, leave you with a shortfall in some months. 


We’ve put together the very best tips we’ve got for those of you who work on a freelance, self-employed or zero-hours basis, but who also want to feel like you’ve got a handle on your finances. So without further ado, let’s get stuck into some money management ideas for variable incomes. 

1. Save when the going’s good! 

We can’t stress enough how important it is to save as much as you can when the work is coming in thick and fast. You’ll really thank yourself if you hit a month where you don’t get a lot of work and it could stop you from missing payments or having to borrow. Saving whenever possible is especially important if you are self-employed as you must put some money aside throughout the year to pay your income tax. It’s never a good idea to leave it till the end of the tax year and hope that you’ve got enough to keep HMRC happy. 

2. Understand your budget in detail

A really thorough budget is a key part of keeping financially fit whether you’re employed full-time or not, but if your income is variable, your budget needs to take those fluctuations into account.


As you are dealing with a variable income you need to focus on your outgoings in detail. Go back through your bank statements to work out what you spend each month – not just on the key bills but in cash too.  You may find a spending diary useful to help with this. You need to end up with two figures in mind.


Firstly the “minimum you need to survive” – this is the amount you spend each month on your key expenditure (also known as priority bills) – such as rent, food, utilities, taxes and so on. If you’re not sure exactly what priority bills are, have a look at our blog What are priority and non-priority debts? Once you have this figure in mind you’ll know that if you earn less than this in any month you’ll have to top up the difference from savings to make ends meet.


You might also want to have a “comfortable spending level” in mind – this will be more than your minimum spending level, and allows you extra money for treats each month.  If you earn any more than this level each month then you really should be trying to save it for the leaner months.


3. Prioritise your spending

You’ve already identified what you priority bills are – so it is really important that you make sure that they are the first things that you pay each month.  For example, when the first pay cheque of the month arrives you should use it to pay your rent, not your credit card bill.


4. Look at your options

Different work patterns suit different people, and if you don’t mind having a variable income because of the freedom that comes along with it, then great. However, if it’s not working out financially at all or causing you too much stress, it could be time to look at a more traditional job.


If the reason that you’re having trouble budgeting is because you’re on a zero hours contract and your employer isn’t giving you any hours at all, you are within your rights to ask why. It might be a good idea in the long run to gain as much experience as you can with your zero hours job – but when the opportunity presents itself, try to move to something that provides more security and predictable earnings. 


5. Supplement your income

If you work part-time, on a zero hour’s contract or you are self-employed it’s always an idea to see whether you could supplement your income with another part-time or flexible job. Is there something that you could do in addition to your normal role when you need that extra bit of cash? Do you have a skill that you could do from home, like sewing, writing, or teaching a musical instrument or a language? You might find that having two income streams, even if they’re both variable, makes all the difference and means you’re not struggling month to month. 


6. Check to see whether you’re entitled to any benefits

Make sure you’re not struggling and worrying needlessly – there could be a benefit out there you should be getting which could really help you during your low income periods. As you’re on a variable income you will have to make sure that you keep the benefits office informed of any changes in your wages as this will affect how much you get. Have a look at the Government’s page which will tell you if you should be claiming for something and how to go about doing this. 


7. Take control of your spending

Being in control of your spending is a big part of being in control of your money with a variable income – or any kind of income for that matter. For loads of money saving ideas, make sure you check out the rest of our money savings section.


We hope that’s helped those of you who have a variable income get a really clear idea of how you should be managing your money. If however, you’ve experienced some difficult financial patches in the past which have led a lot of borrowing, you may feel you need help managing those debts as well as budgeting advice. If this is you, use our Money Smart report at the top of the page – it’ll tell you quickly whether you’ve got a surplus or a deficit and whether you need debt help. If you already know your debts aren’t manageable, there’s lots of advice available on the rest of the site and our advisors are awaiting your call. There could be a debt solution suited to your needs – the options on the left will get you through to an expert who will assess your situation and recommend the very best plan for you. 


by Christine Walsh

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