Budgeting and Uncertain Incomes

Budgeting & Uncertain Incomes

For many of us, our income might vary each month. It can be tempting to budget as if every month will be a good one. But this can leave us with not enough if we have a bad month.

The advice 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.

Budget for your outgoings

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 – and this is a good place to start.

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

• rent or mortgage

• travel costs

• mobile phone

• electricity and gas

• insurance

• Local Property Tax

• food

This might not be perfect, but if you know how much is going out each month, you can budget – based on how much is coming in. This is a good way to identify where you can cut back.

Make sure you can cover regular bills

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.

Think ahead

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.

Build an emergency fund

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 income shocks.

Budgeting on benefits with an irregular income

The amount of money you get for benefits can vary due to a range of factors including earnings, means etc. If you work a lot more hours than usual one period, it’s possible you might earn more than you’re entitled to get for a particular benefit.

Budget for high-cost months

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.