Managing money is hard. What do you do when you want to plan for expenses and your income fluctuates? If you’re a freelancer or entrepreneur, one month you feel on top of the world with lots of clients, and the next you’re scraping to get by.
How can you manage money when your income fluctuates?
A reader wrote in to Ask Carly to find out.
Ask Carly is a way for us to stay connected and support one another on our journey to gaining financial independence. It’s a judgement-free place to get some solid advice, because, you don’t need to figure this money stuff out on your own.
You can submit your question about life and money here.
I’m freelancing, my main concern is making smart decisions when my income fluctuates. The anxiety is real! 🙂 What should I do?
That’s a great question. I personally went from college student to entrepreneur and never had a set pay.
Here’s six tips on how to manage money when your income fluctuates.
1. Manage your anxiety in general
When stress and anxiety hit the chances of making smart decisions goes down the drain. Chemicals are released, and you’re in a state where your concentration doesn’t allow you to think clearly. Here’s five quick tips to reduce your stress and anxiety from Psychology Today.
I’m no stranger to anxiety. Here’s how to stress less about money.
2. Have a money meeting for the quarter and review your plan monthly
Once your anxiety is in check, you can concentrate to have a plan with your money. It’s easy to get to the end of the month and wonder, where did my money go? This is reactive. Instead become Chief Financial Officer and run the business of you. I recommend projecting your income and expenses for the upcoming quarter or next three months. Then each month review your plan and fill in what happened for the most recent month. I give out my exact spreadsheets that I use for this in Best Money Class Ever.
3. Your income: remember it’s a number’s thing
To project your income, you’ll first want to figure out what you desired income is and do reverse engineering.
For example, let’s say you have a contract job where you work hourly and get paid $25 an hour. If you want to make $3,600 a month, then you simply need to make sure you work 144 hours for the month, or at least 36 hours per week.
Or if you’re a graphic designer and you want to get paid $3,600 per month, then look historically how much profit your average client brings in and what it takes to acquire that client.
If it takes reaching out to 10 business owners to get one paid client that brings in $1,200 on average, then be sure to reach out to 30 potential clients per month.
4. Create a regular paycheck for yourself
No matter how much you plan, your income will still vary from month to month. That doesn’t mean you can’t bring consistency. One lifesaver for me as a business owner is to have a business account (this is a must-have!) and to pay myself in my personal account a set amount monthly. With this example you could transfer $1,800 on the 1st and 15th each month.
What happens is you’ll hold yourself accountable and push to reach your goals. There will be months that you exceed your goals. You can leave the excess in your business account to have a buffer for the months inevitably you don’t reach that income level.
5. Create predictability with your expenses
Although all expenses seem out of control and unpredictable, almost all your expenses are predictable and 100% in your control. It isn’t a shocker how much your rent or car payment is every month, because you signed up for that, right!?
When your income fluctuates, it’s important to keep your fixed expenses low. A rule of thumb is to keep your rent or mortgage 25% or less of your take-home pay. In this case if your desired income is $3,600, you’d want rent of $900 or less.
If you eliminate completely other fixed expenses like internet radio or cable, you’ll feel much less stress.
When it comes to having consistency with debt repayment or investing when your income fluctuates follow The Finance Plan. It’s a step by step plan that works. Learn about it in The Ultimate Guide to Managing Money. Get your free guide here.
6. Get a bridge job
When trying to create a regular paycheck for yourself, if your actual income is nowhere near where you need it to be to cover your expenses, then get a bridge job. This is a side hustle that bridges the difference from where you are now and where you need to be.
Look at how and where you spend your time already and find a way to get paid doing what you’re already doing. Need inspiration? Read this story on how one person pursued their passion while paying off debt and this story on how someone doubled their income and cut their expenses.
You can still have a plan with money when your income fluctuates. Try these six tips out.
