By Daniel Rodriguez | Dr. Budgets
It can be hard to manage your money with variable income. When you have variable income, some months your income flows in abundance, and other months it isn’t enough to pay the bills! What is one to do?
When I launched Dr. Budgets in 2013, my new company was generating very little income (less than $1,000/month), and on top of that, the income was also inconsistent. It was hard to make ends meet on the Dr. Budgets income alone. As the income grew from my new venture it because easier to meet my monthly expenses with that income, but it became critical to create some consistency with my variable income. I learned quite a bit along the way, so I’d like to share some tips to help you in your variable income journey…
1) Set Personal AND Business Financial Goals. If you have variable income, it is important to set both personal and business (or sales) goals. It could be as simple as setting a personal income goal (for example, $2,500/month after taxes), then determining how much revenue (or sales) you need to generate on the business side to achieve that goal (for example, $5,000/month in sales). After you complete this simple exercise, you would have both a personal and business financial goal! I took myself and my business through this exercise after my first year in business, and it really helped me set the course for my finances moving forward. This leads me to the next tip…
2) Determine Where Your Money Goes (Personal AND Business). It is important to know the flow of money for both your personal and business finances. If you have separate checking accounts for your personal and business spending, congrats – you are ahead of the game! If not, it’s okay, you can still figure out where your money goes. To do this, look at your personal and business spending for the last three to six months, then add in any expenses that are not included in that time period (for example, insurance that you pay annually). This should give you a good estimate of how much money you need to earn to ensure you have enough to pay for those expenses.
3) Create a Personal AND Business Spending Plan. To achieve the goals you set for yourself in Step 1, I recommend you create a realistic personal and business spending plan (budget). First, create a personal spending plan to determine how much after-tax income you need to pay for everything in your personal life (expenses, debt payments, savings). Once you know how much you need on the personal side, you know how much your bottom line needs to be on the business side to make that happen. This will be the “salary” you will need to pay yourself. Once you calculate your business expenses and an estimate for taxes, you can add up all those numbers up to determine your minimum revenue (or sales) target. If you don’t have a separate checking account for your business expenses, I highly recommend you set one up. If, after you complete this exercise, you don’t think your business will generate enough income to meet your needs (especially early in your business venture), then you can do what I did when I first started my business…
4) Get a Steady Income. When I launched Dr. Budgets, my business didn’t generate enough income to meet my needs, so I worked valet at night to give me a steady flow of income. At that time, I had more time than income, so I shifted some of my time to work a job that provided me some steady income. Once Dr. Budgets started to generate more per hour than my valet job, it was time for me to quit my job and focus on Dr. Budgets full-time, which I did in 2014.
Perhaps you noticed a common idea in these tips… it’s important to get your personal AND business finances in order. If you’re a small business owner, you really can’t manage one without the other. That is one reason why so many clients have hired us for personal and small business coaching.
If you know someone with variable income who needs someone to walk them through this process, have them schedule a complimentary consultation today to see how we can help. Or, if they just need some tips on how to save money, have them download our free eBook: Ten Ways to Save $10K.