How to save with an irregular income

I was chatting to my sister and she asked me “how do I save if I don't have a steady income?” Good question, I thought. Not everyone has a steady income and, consequently, planning for your finances can seem a bit tricky.

We have all heard the infamous words “pay yourself first”. This advice shouldn't be ignored but this isn't so simple for everyone. Many of us have our super and taken out of our pay automatically. Some even have salary sacrifice for cars, laptops etc. This can't be done by people who earn their money in irregular lump sums. So it takes some backwards planning. By this I mean looking at your spending before your income. Oh and you will need a calculator for this. Because in a stroke of genius (very rare), I discovered it's all about percentages.

I know it sounds annoying, but I recommend tracking your spending for two to four weeks. Use an app like HomeBudget for iPhone/iPad. It's much easier! You don't want to do this forever (well you might you weirdo) but if you get a good idea of your monthly expenses, at least you've got something to work with. Ideally, you want to get a rough idea of how much you spend on groceries, utilities, entertainment, rent/mortgage, transportation, insurance. From here, you allocate an amount for super, emergency fund, debt reduction (goes straight onto the credit card and savings account.

But how much?

Once you work out how much you spend per month, average it out so that you can give yourself a weekly spending ‘allowance’. Remember the goal here is to have a healthy savings amount in the bank, so be smart about your allowance so that you stick to it. It has to be effective but realistic. Here is where you can cut down on unnecessary things. You’ll be amazed at the difference small changes can make. You want to be really strict with sticking to this amount, so make sure have budgeted for entertainment. It could be going out for dinner with the girls or getting a bottle of wine and a pizza for you to enjoy at home, alone on the couch. Both are great things 😉

Now that you've worked out your expenses, you will have a much clearer understanding of how much you can save. So let's look at how much should go where.

Super:

I recommend transferring at least 10% of each payment you get into your super account. Legally, employers have to put in at least 9.5% of their employers salaries into a superannuation fund. Stick to the 9.5 if you have to now, there's no problem with this. You can always add more to it when things are more stable. If you are earning irregular income, chances are you will have to choose your super fund yourself. A little bit of research goes a long way, as not all super funds are the same. There are a number of super comparison sites to help guide you:

CanstarCannex

ChantWest

SelectingSuper

Need an incentive? Many self employed people can claim full tax deduction when paying their own super 🙀. What are you waiting for???

Emergency savings account:

Having at least three months expenses in an emergency fund is a must; especially for people who have irregular incomes. Most financial advisors recommend six month, which I agree with. To be honest, and I've said this before, this amount is completely different for everyone. It's all based on what you earn and what you are used to spending. See, there was a point to tracking your expenses!

After you've done this, you will need to establish if it is better for you to put booster chunks of money into your emergency fund or grow it over time. Again, you have to choose the option that is most suitable for you. Many may only be able to put away 10% each time you get paid, whereas others can do 30%. Again, just make sure it's realistic and effective.

Now what I'm about to say may be a bit controversial, BUT… You are allowed to dip into your emergency fund. Yep I said it. Only if you repay the amount to yourself with your next bits of income. If you have weeks without work you will need this money to live off. Be flexible and just keep that three or six months expenses amount as you target.

Why not just leave it in your spendings account? Because you won't earn interest and it's way too tempting. Simple.

Debt Reduction:

Obviously you need to make your minimum monthly repayments, but getting rid of that debt should be your number one priority. When you workout your expenses, factor in your minimum repayments x2. If you are seriously skint (and I mean seriously) you can go x1.5.

If you find that you have any extra money, paying off your debt should be your absolute first priority. Paying interest instead of earning interest is not ideal!

Fun savings account:

By far the best savings account. The is the one you get to use for a house deposit, holiday, car, whatever! Once you have paid off your debt, and have a decent amount in your emergency fund, you can start saving for the fun stuff. If you have just finished paying off your debt, do a direct swap. Instead of paying the banks, you can pay yourself! How ridiculously satisfying! If you didn't have debt, it's really up to you what percentage of your income you want to save. I would recommend at least %10, but it totally depends on your circumstances. As long as you put something aside each time you get paid, you’ll be on the right track.

In order for this to work, use separate accounts for each. Heck, get a bloody account just for bills if you want to! This way you can take regular payments even if the income isn't so regular. Internet banking makes this so easy. Choose savings accounts that don’t charge fees and give a decent amount of interest (remember, you want your money to work for you! Not rip you off!).

Look, above all, just ensure you always have enough money for wine and chocolate.