How to budget for an irregular income

If your income varies, it can be tempting to budget as if every month will be a good one. But this can leave you with not enough if you have a bad month.

A good tip is to budget for your lowest monthly income – at least you’ll always have the major costs covered. Then, if you have a good month, you can revise your monthly budget up or put the extra into savings.

Or you can total up all your outgoings over the last year and divide it by 12. This will give you an average monthly income.

To help you manage your money, try our free and easy-to-use Budget Planner.

You might not know how much you have coming in every month, but you should have a good idea about how much is going out. Once you know how much you need to set aside pay for essential bills you’ll get an idea of what’s left to save or spend.

Make a list of all your important regular outgoings. This includes:

• rent or mortgage
• travel costs
• mobile phone
• electricity and gas
• insurance
• Council Tax
• food.

While this should be as accurate as possible, don’t worry if you can’t account for every last penny. The idea is to get a general snapshot about how much is going out each month, so you can budget based on how much is coming in.

This is a good way to identify where you can cut back.

If you’re worried about your bills or have already missed a payment we’ve a Bill prioritiser guide that can help point you in the right direction.   

When you’ve worked out how much you have going out, you need to be sure you can cover these costs every month. If not, you can easily be charged for going into your overdraft, or face getting into debt.

If you’re worried about dipping into money meant for these bills, you might want to set up a separate account for your regular outgoings. You can then use it to top up in a higher-income month. This way, you’ll always know the money is there to cover essential expenses.

It’s important to factor in seasonal changes in income, particularly if you’re self-employed. In some industries, Christmas is a good period. While in others, the holidays are a slow time, with little income coming in.

You also need to be aware of times when your outgoings will be higher. For example, around Christmas, or in months when there are birthdays or annual bills due, such as car insurance.

When you’re self-employed, you’re responsible for paying tax and National Insurance on your income and if you’re newly self-employed your first few tax bills can come as a bit of a shock if you’re unprepared.  

You can use the Self-employed ready reckonerOpens in a new window to get an idea of how much tax and National Insurance you’ll likely need to pay.

If you have a good month, or a month when you spend less than expected, avoid the temptation to just spend the extra cash.

Try to build up an emergency fund to cover unexpected costs and get you through times when your income might be lower.

It’s good to have three months’ essential outgoings available. But even having a month’s income saved will protect you against some income shocks.

The amount of money you get for Universal Credit is based on your earnings for the calendar month before you get your payment. This is called your assessment period.

If you work a lot more hours than usual one month, it’s possible you might earn more than you’re entitled to get for Universal Credit.

If this happens, your Universal Credit payments could stop and you might have to reapply for it again.

This can also happen if you get paid weekly, fortnightly or four-weekly, and have a month with more pay days in it. It’s important you look at your calendar to check your pay days and tell your work coach about any changes.

GOV.UK has more information about how your earnings affect your paymentsOpens in a new window

It’s important to factor in seasonal changes in income, particularly if you’re self-employed.

You also need to be aware of times when your outgoings will be higher. For example, around Christmas, or in months when there are birthdays or annual bills due, such as car insurance.