Irregular Income

How can you deal with income that changes all the time?  Whether you are a shift worker, casual worker, or on a roster that pays based on your uneven hours, it can be tricky to manage your budget when you don’t get a consistent pay.

How do you know how much to put aside for daily living, monthly costs and annual bills?

Where do you start planning it all out?

There’s a couple of ways that you can deal with this.

Split your spending into percentages

Having a set percentage of money going into each bank account will allow you to top up the bank accounts on a good pay week, and create a buffer in those accounts for the lower earning weeks.  Having bank accounts for a purpose will allow you to see how much you have available to spend.

This is based on the Barefoot Investor model - where set percentages are shown in the book for the average family.  (But your family probably isn't average, is it?)

Each pay day you will need to do the calculations and transfer the money - which can be time consuming and easily adjusted based on how you feel.

Work out how much money you receive on average over a 3 month period, then check that it's going to be around the same.

Set up a spreadsheet so that you can type in your income amount, and it will automatically calculate how much your transfers will be.

You may need to tweak percentages if your average income decreases or increases significantly over a period of time.

A mini budget for each bank account

Knowing how much each bank account needs to have deposited each pay (especially if it’s for direct debit payments) gives you clarity for that bank account.  This involves knowing your direct debits that come out of your account and then creating a timeline so you can work out an average amount per pay.  This works well, where you have priorities in place - so x amount is needed for essentials, y amount for wants and z amount for savings.

It might look something like this:

In.      - Out.      = Balance

+165.   - 65         = 100

+165.   - 126       = 139

+165    - 220.      = 84

+165.   - 200.      = 49

+165.   - 65.        = 149

+165.   - 126.      = 188

Work out what’s important to create the order that you do the transfers - ie topping up for groceries might be more important than saving for new tyres or a holiday, so you would make sure to do those transfers first.

Use a separate income account

Taking advice from the Profit First system, where businesses have a whole load of income coming in from different sources at different times, means that you aren't quite sure how much you will have at the end of the week.

Having a separate income account to quarantine your money so that the transfers to each purpose bank accounts can be regular.  This means you don’t spend all your income, rather hold it until it’s ready to be transferred.  This is my favourite set and forget model - and if you are “bad” at spending your money you can have this set up in a bank that you don’t normally use, so that you are not tempted to spend what’s in there.

This is great for people who get paid monthly too - to slow down the spending and have only a smaller amount allocated to your spending accounts each week, transforming you from being on a rollercoaster of ups and downs, to smoothing out money available for spending.