If you have a variable income or no income at all, creating a workable budget can be more difficult – but it’s not impossible! Check out our top tips on how to plan your budget no matter your income.
Planning an effective budget isn’t always easy, especially when you don’t have a fixed income each month or are currently unemployed. If you dread the idea of creating a budget, reframing the process could help. Instead of viewing budgeting as a punishment or something designed to restrict your spending, think of it as a way of taking control of your money and a means of affording the life you want to live.
Everyone has different priorities in life and different financial goals; if your bills and essential expenses are covered, the rest of your budget should be tailored to you and your ambitions. Regardless of your earnings or employment status, keep in mind that it’s almost impossible to work with a budget that’s only based on essentials – everyone deserves to spend on fun and small luxuries from time to time.
Read on to discover our top tips on how to plan a budget that works for you, no matter your income.
Use your lowest possible salary
When planning a budget with a variable income, base your calculations on your lowest possible take-home salary. If you’re self-employed, have a commission-based role, or work to a zero-hour contract, your pay will probably change from month to month. There might be months when you’re fully booked and your clients pay on time, but there might also be months when invoices are delayed, or you need to take unpaid time off. Depending on your industry, your work may also be seasonal, slowing down in the winter months and getting busier again in the summer, for example.
Basing your budget on the lowest amount you could earn means you’re less likely to be caught short in leaner months and can treat any additional earnings as a bonus! It may also be worthwhile setting aside additional budget to cover costs that might go up throughout the year such as annual utility bill increases. If you have seasonal booms, saving in the high earning months can help you get through the quieter times without needing to make large lifestyle changes.
Write everything down
No matter your income, budgets work best when you keep track of exactly how much you have coming into your account and how much you spend each month. It can be surprisingly difficult to know exactly how much you’re paying out, especially if you use a contactless debit card or Apple Pay. Popping into the supermarket for a top-up shop, picking up coffee at the drive-thru on the way to work, or renting a film on Amazon Prime are all small costs that you might not include in your budget, but can still add up.
It may not be your ideal way to spend a Saturday afternoon but setting aside a few hours to go through your bank statements and write down everything you spend in an average month could really pay off. And remember, budgets should be flexible. Keeping track of your costs using a mobile app or an Excel spreadsheet can be more effective – and easier to amend – than putting pen to paper.
Essential costs vs. lifestyle
After reviewing your average monthly spending habits, the next step is to work out which are essential costs. Typically, these are things like your rent or mortgage payment, utility bills, food, insurance, and fuel. While you might be able to make some savings in these areas – perhaps by switching to a cheaper supermarket or using a new electricity provider – they are still costs that will need to be covered every month no matter what. Plan to have enough money in your budget to pay for these essentials as a minimum.
The remaining costs cover your lifestyle. When creating a budget, you don’t necessarily need to get rid of all these costs; regardless of income, you can budget spend for the things that make life worthwhile. List out your lifestyle expenses in priority order and look to see if there are any that you could live without or swap with a cheaper alternative. This assessment might change month-to-month depending on your income; a monthly trip to the hairdressers might be an affordable luxury in a high earning month but move into the non-essential column when money is tighter.
Build an emergency fund
Your emergency fund is an important thing to consider when planning a budget. This money is set aside to help you cope with anything life throws at you; it could keep you going in a quiet freelance month, cover the cost of fixing a broken boiler, or pay for an unexpected parking fine. Saving a little each month – and topping up the fund when you do spend from it – can help give you peace of mind, especially when your income changes. Most experts recommend having an emergency fund that could cover at least three months of your essential expenses, but six months can be even better.
Check your benefit eligibility
If you’ve been unemployed for a while or have just lost your job recently, you could be entitled to benefits that you’re not currently claiming. These benefits could boost your income and give you more room in your budget. Pay a visit to your local Citizens Advice or check online to find out whether there are any benefits or grants available and what terms and conditions apply. This advice isn’t only relevant to people who are out of work, you could also be eligible for additional benefits if you have young children, care for an elderly family member, or have a disability that impacts your earning potential.
Prioritise bills and debts
In most cases, bills and debt repayments should be prioritised above savings and lifestyle costs in your budget. There can be severe consequences if you fall behind with these payments, ranging from added interest and a lower credit score to court action and bailiff visits. Consider setting up direct debits so that all your bill payments go out on the same date as this can make them easier to manage and decrease your chances of forgetting to pay.
When paying down your debts, there are two popular methods you may want to incorporate into your budget:
- Debt snowball – this is when you tackle your smallest debts first before moving on to larger debts.
- Debt avalanche – this is when you start with the debt with the highest interest rate first
The best option for you will depend on your circumstances – there’s no right or wrong solution. However, if you’re struggling to keep up with your debts, don’t be afraid to seek help. An experienced debt advisor can guide you through the options available and help you find a debt management solution that works with your budget.
If you’re looking for debt advice, our friendly team is here to help. Give us a call on 0161 8260 585 or send a message here