Saving with irregular earnings

If you have irregular monthly earnings, then how you save and budget for the long term is all in your preparation.

If you are self-employed or a freelancer, you will likely have irregular earnings. Meaning it can sometimes be a little difficult to save and budget, especially when most advice readily available is tailored to salaried earnings.

It’s important to find an approach to saving that works for you and your financial circumstances. This approach should be tailored to how much you are paid and when. In the long run, if you’re prepared to take a more forward thinking approach to saving, it will help you build a better relationship with your finances and not leave you in any sticky financial situations.

First, work out your essentials

Before you even think about budgets and saving plans, you need to know how much you spend on essentials. Just because you earn a different amount monthly, your essential outgoings will remain around the same each month. Think about things like:

• Mortgage or rent
• Utility, internet, tv bills etc
• Travel costs
• Food shopping
• Insurance

Add them up and total your essential outgoings.

Secondly, work out what is left over

After you know your essential outgoings, you can work out what you have leftover each month.

Due to your irregular earnings, the amount you have left over will likely change monthly, so it is important to be flexible with your savings and take an active approach to how much you choose to save and when. You should study every paycheck so that you know how much you will have leftover after your essential outgoings have been paid. It’s a great idea to save a percentage of your leftover money each month. This is a great technique to save consistently, realistically and not leave yourself out of pocket.

Time to work out your budget

Knowing what is left is good, but without a budget it can be easy to burn through what’s left. Budgets allow you to maximise how far your money can take you.

With an irregular income, you might want to consider budgeting for your lowest monthly income, as these are the times that you are likely to be the lightest on cash. This will help cover your major costs and make it easier to increase in months when you have more money.

If your money changes significantly seasonally or on a job-by-job basis, you may want to make a budget by dividing your annual income by 12.

Think ahead

If you are self-employed or have significant seasonal changes, it is important to think ahead. Budgeting can give an idea of how long money might last, but you will also have to consider other events in the year when your outgoings may be higher, like Christmas, annual bills or birthdays.

If your income is irregular, planning for much longer periods can actually be easier than trying to condense on a monthly basis. It might be worth planning your payment pattern, for example holding back money for bills later in the year, investing more in your emergency savings, or even raising your pension payments for a few months of the year.

If one month you have higher earnings, think forward to ensure you will be comfortable all year round before splurging.

Split it up

Psychologically, it is much easier to spend money when you can see it sitting in your current account. If you fall victim to this, it may be a good idea to set up a seperate savings account.

It’s a great time to start investing as most high-street savings accounts currently offer low interest rates. But as you build up your wealth you should explore wealth management options and look to diversify your portfolio. Money makes money – but it doesn’t if it’s sitting in a stagnant account.

Set some goals

Saving to simply save can be disheartening. Why not set yourself a few goals?

You might also want to save for certain things, like holidays, new cars or refurbishment, or perhaps even put money away for your retirement. What you save for and how you save is up to you, but setting achievable goals can help you get there faster.

Build in a buffer

With irregular incomes, a cash buffer can be a lifesaver, especially as you may go for a few months without being paid or with lower pay than expected. Normally, it is recommended that people build an emergency fund that can pay between three and six months of bills. Although if you have irregular income, you may want to increase this amount to up to 12 months, as this pot is your plan B if money is slow or something bad happens.

Likewise, a substantial cash buffer could allow you to balance your monthly payments.

Find a place for your extra cash.

If you save regularly, you can build up more money than you need, which means you could be looking for somewhere to put it to work even harder. You may be thinking about investing to unlock more potential from your money.

We can take the stress out of investing and help you decide how much you should invest, and choose investment styles that fit your risk appetite. We’re here to ensure your saving and investment journey works around your irregular income pattern.

Click here to schedule a no obligation initial consultation with one of our advisors.

Lawsons Equity – Independent Financial Advisors Malta

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested.

Lawsons Equity Limited is a company registered in Malta with company number C49564 and licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994.

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