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Surviving on a fluctuating income

Lucy Miller 16th Jun 2020 3 Comments

Reading Time: 5 minutes

Are you trying to manage your expenses and get by, whilst not having a steady or reliable income stream? You’re not alone. With the rise of the gig economy in recent years and more people in unstable work, thousands are finding themselves with fluctuating incomes in a way that would have been unthinkable a generation ago. This was true well before the coronavirus lockdown hit, and it will continue to be true long after it has ended. 

There are multiple reasons why you might find yourself on a fluctuating income. You could have a job, but be on a zero hours contract that doesn’t guarantee you work every week. Equally, you could have decided to embark on a freelance career and have income from various sources that is likely to change month to month. 

So, if you’re a freelancer, you’ve started a new business or are on a zero hours contract, here’s how you can manage with your fluctuating income. Read on for advice on budgeting, saving, benefits, and how you can create a side income to bring in extra cash. 

Turn your hobby or skill into money

Use a hobby like sewing to help survive on a fluctuating income

If you’ve got some extra time, your fluctuating income can be supplemented with other work. Got a crafting hobby that you could potentially make some money from online? Have a look at Etsy for inspiration. Everyone with a little bit of crafting skill is doing it, and some are making good money from online orders. 

Think about teaching your skills, too. You can do this either online or in person, in your local area. Hobbies or skills that you could teach to bring in extra cash include languages (teaching them to children or adults that want to learn), photography, or even academic subjects like GCSE English. Anything can be taught (and monetised), as long as you’ve got a reliable internet connection and a little bit of ingenuity. 

This can be a particularly great idea if you’re in a zero hours contract and finding that you aren’t getting as many hours in as you might have hoped. Use the extra time to develop your own income stream (or streams!) and you could be on to a winner. Using your skills to teach can be a great side income for students, too. 

Be aware of lucrative months

If you’re on a fluctuating income, it’s likely that you will also have particularly lucrative months that make up for the others, where your income has been lower. Freelancers often describe their income as “feast and famine”, so you’re definitely not alone in this. 

The key is to avoid getting carried away with your spending when you have months that bring in more money. Yes, it might be nice to go for a meal or buy a new pair of shoes if you’ve been scrimping for months. You are definitely allowed to do this! But be wary of excess. You need to remember that this money will need to see you through the rainy days that are part and parcel of a changing income. So treat yourself a little bit, but put some money away on your good months too, rather than frittering it all away. 

A good way to start great savings habits is to set aside portions of each invoice in different savings accounts or pots. Save 30% in one account for your tax and National Insurance bills (if you’re self-employed), pay 10% into your pension or retirement fund, and at least 10% into a ‘rainy day’ savings fund. Yes, that means 50% of every invoice doesn’t go into your immediate spending fund! However, ‘future you’ will thank your foresight. We all have dry months on a fluctuating income – having these savings really helps.

Know your key expenses

Make a budget to handle a fluctuating income

Knowing what money is coming out of your account is important if you’re on a fluctuating income.

Add up your rent or mortgage, and how much you generally spend on food or travel, and your monthly utilities bills, and you’ll have the absolute basis of what you need to earn to cover your immediate needs. Then add other outgoings: direct debits for the gym, for example. Once you know how much these extras cost you, you’ll have a ballpark for how much you need to earn to maintain your current lifestyle. This can help you to know if you need to cancel direct debits or cut back on certain things too – something that can help you avoid falling into debt.

Save your tax 

If you’re on a variable income because you’re freelancing, slow months might not necessarily encourage you to put aside a third of your income for tax. It is essential that you do do this, though. If you don’t, you’re going to end up with a nasty shock when January (and your tax bill) comes around – and it will come round more quickly than you think! 

Saving for the future can seem hard when your income isn’t reliable. By putting aside money, you’re avoiding having to magic it out of nowhere in a few month’s time. The same goes for saving for your pension (yes, you should be doing that too). If you’re new to working for yourself it’s important to remember that what you’re paid needs to cover these things too. So get into the habit of asking for more money! 

You might feel 30% for your tax bill is a lot – but remember that you have to budget for Payments on Account. This is where you pay your tax bill PLUS 50% of the anticipated next one, all in one go. Then you’ll pay the next 50% in July. It’s a surprise cost for many of us – read more about Payments on Account here.

Think ahead

After your first Self Assessment is completed, you can plan ahead for future years. How? Submit your tax return in April! Yes, really. When you submit your tax return, you don’t have to pay your tax until January. However, it will give you an accurate amount that you’ll need to pay by January 31st. Work out how to save that much between April and the following January, divide it by nine. Set aside that amount PLUS 50% each month: then, you’ll be ready to pay your next tax bill AND Payments on Account without any shocks. It’s much easier to budget when you know the exact amount you have to pay.

Make sure you’re getting your benefits 

It’s important that you’re getting all the benefits that you’re entitled to. Universal Credit allows for flexible earnings each month. It’s also available for the self-employed and those on low incomes. You may also be entitled to other benefits, such as Child Tax Credits, so make sure you know what they are. These benefits can be a great help during your slow months. You may be able to get job advice as part of the service too, if needed. You can look into what benefits you’re entitled to with Gov.uk’s benefits calculator.  

Have you got any great tips for those on a fluctuating income? Managed to make it work for you? We’d love to know how you did it – let us know over on the forums.

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3 years ago

Very good advice here.

3 years ago

Its always good to when you can save on tax bill.

3 years ago

A great article with some very useful information.

Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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