How To Save With A Variable Income

Mainstream budgeting techniques and savings suggestions often ignore the fact that a lot of people have a variable income. They don’t get paid the same amount every single payday and often the paydays don’t follow a regular pattern. Therefore, it can be very hard to get into a saving rhythm.

For example, a lot of finance experts suggest automation as the best technique for saving more. But this can be very tricky to implement when the amount you get paid changes each and every time. Plus it may not even be on the same date, so knowing when to set up the automatic payment for is hard.

I have had a variable income for the past three years but by implementing these different techniques I have saved/invested over £34k. Let me share the best saving techniques I have found with you!

Firstly, get to know your numbers

What do I mean by this? Do you know exactly how much you need to cover your basic necessities? No? Well, first things first you need to get to know your numbers. Grab a pen and paper and write down all the essentials you pay for. The total is your base line. This should include things like housing, bills, food, transportation. Not things like Netflix, eating out, travel – these are the extras.

In another column write down all of these extras. The things that add value to your life, but you could theoretically survive without.

Now you know exactly how much you need to survive and how much your current lifestyle costs you. These numbers are very valuable to know off the top of your head when dealing with a variable income, as you will instantly know what you have left to play with.

Secondly, set SMART goals

Setting goals is one of the most crucial things when it comes to saving. It will motivate you and by giving your savings a clear purpose you will be less tempted to tap into them willy nilly. So, take a moment and create SMART goals…

Specific
Measurable
Attainable
Realistic
Time-based

You will be less likely to achieve the goal “I want to save more money” compared to the goal “I want to save £5k by next December for a trip to NYC”. This way you can envision what that money will be going towards rather than feel cheated out of it in the short-term.

Ok, now that you have your foundations in place let’s get into a range of techniques you could implement to save money living on a variable income….

50/30/20 Rule

I’m sure you have heard of this classic budgeting method before but just in case you haven’t let me quickly explain. The 50/30/20 rule suggests that you split your income into these three percentages and use them for different aspects of your life. 50% of your income should be spent on your needs – e.g. housing, groceries, bills, insurance. 30% should be spent on wants – e.g. eating out, entertainment, travel. And the final 20% is for savings.

This is probably the simplest way to save with a variable income as regardless of how much you are paid you will be saving 20% of it. However, in most cases I find this to be too limiting as it easy to get comfortable with it and not push yourself to save more. And in some cases, the percentages are too unrealistic. For example, students or those living in high cost of living areas may struggle to keep their housing costs below 50% of their income.

However, this a great method to start with and you can always adapt the percentages to suit your lifestyle and situation. You may find you need 60% for needs, but only 15% for wants so you can save the remaining 25%.

One goal at a time

This method is definitely the easiest one to implement. Essentially you only focus on one goal at a time, sending all available money towards this goal until you achieve it. Putting all your effort into one goal at a time will ensure you stay focused, and the pot will add up faster than if you were trying to achieve five goals at the same time.

What does this look like in practice? Well because you know your numbers, when you get paid you will be able to easily work out how much you have left over. Transfer this entire amount to the account you keep your savings in.

Scrape off the top

My brain has something against non-rounded numbers. I just like them to end in a zero. If you are anything like me, then this could be the method for you!

I find this is the best method when it comes to investing, as manually splitting rounded numbers amongst the various funds is much easier. Saves a lot of annoying mental maths. So, I got into the habit of scrapping off the top if you may. Let me show you an example.

This past year I have had two goals I wanted to achieve; invest £20k and save £5k for my gap year. The investing goal was my number one priority, but goal number two had a deadline, so I knew I had to give it some of my attention. Therefore, every time I got paid, I would scrape off the top for my gap year fund and then send the majority to my investment account.

Example: Say I got paid £321.45. I would take the £21.45 and transfer it to my gap year account and then the £300 would get invested.

Doing it this way saved me from having to do any complex maths or god forbid deal with percentages 😂. Once I had hit my £20k investing goal, I shifted my focus completely to the £5k goal and would transfer the entire amount.

This method could easily be adapted to those with only one income source. Every time you get paid, immediately scrape off the top and add that amount into your savings pot. Then make your budget with the left-over amount, as if you’d never received the scraped off amount. This way you have saved first and your pot will continue to grow without much effort on your part.

Different stream, different purpose

This technique is especially relevant to students, who often have income coming in from multiple streams. For example, you could have your maintenance loan, a part-time job, and a scholarship. That’s three different income streams. Make things simpler for yourself and assign each stream a purpose. In this case, you could reserve your maintenance loan for living costs, all income from your part-time job could be for a house deposit and then your scholarship is for a travel fund.

Giving each stream a purpose will reduce the temptation is just spend whatever comes in as you will have already associated that money with a specific goal. I attribute my ability to save every single penny I earned outside of my maintenance loan to this technique.

If you think that you lack the strength to send the entire amount of a certain income stream to one goal, why not change the account it gets paid into? Say you decide to send all income from a part-time job into your house deposit fund, give your employer the bank details of the account you keep that fund in. This way you would have to manually remove the money from the account in order to spend it. Psychologically that is harder than if you were to have it paid into your current account and hold some back.

Roundups

Enabling automatic roundups is one of the easiest ways to begin your savings journey. Essentially this means if you spend £2.25, £0.75 will be automatically transferred from your balance into a savings pot. Most FinTech’s (e.g. Monzo, Starling etc.) have this option available to their users.

Chase has an incredible offer when it comes to roundups, whereby all your rounded up money will get a 5% interest rate. Now I don’t have to tell you how incredible that rate is compared to others on the market.

The only problem with roundups is that you have to spend to save. So, implement this one into your finance routine but don’t just only do this one. Treat it like an additional bonus.

Bottom line, saving with a variable income is all about putting systems in place that work for you and your financial situation. What works for one person will not work for the other, so take these technique suggestions as inspiration and go forth and make them your own!