Variable income is a real challenge when it comes to managing your finances as a freelancer. But just because something’s a challenge doesn’t mean it’s impossible.
How many times have I heard…
“Budgets just don’t work for me… my income is too variable.”
“I can’t make automatic debt payments because… well… variable income.”
“There’s no way I could possibly do jury duty… don’t you know that I have VARIABLE INCOME… GEEEEEEZZ.”
I’ve heard it … because it comes out of my own mouth sometimes, too.
But here’s the thing … it’s not true. You can do all the same financial stuff that every one else does. You just might have to figure out a way to do it that makes sense with how you spend money.
THE FIRST ROADBLOCK: YOU’RE SPENDING IT WRONG
I don’t mean that you’re spending it in the wrong places. I mean that you’re spending it at the wrong time.
One of the hardest things about variable income is that you have no idea how much is coming in from month to month (duh)… so how can you make any sort of plan?
Regular income earners know exactly what’s coming in every month, that way they can make decisions about how much to save, how much to spend, all that fun stuff.
You may not have any idea if this month is going to be amazing or an exercise in coupon clipping.
So what’s a freelancer to do?
SHIFTING THE SPACE-TIME CONTINUUM….
What if you could know on the first of every month how much you have to spend that month?
Then you could make a plan, right? If it was a lot, you would know that you could save some… maybe chip away at the old debt. And if it was a low month you would know to keep your eyes open for sales on ground beef.
Sounds pretty perfect.
Well, you can.. if you just shift your spending. Instead of spending money as it comes in, you spend what you make this month…. Next month.
It’s a trick I learned from the good folks at YNAB. Every month you only spend what you made the month before… it’s still a variable amount, but suddenly you’re able to budget and know if you can afford to save/pay down your debt.
WHEN YOU TAKE OUT THE VARIABLES… ALL YOU HAVE LEFT IS INCOME
I’m sure you’re thinking… “that’s all well and good to say, but it’s harder to actually do.”
How do you make that transition? How do you handle months when you don’t make anything at all?
The transition takes time. It took me around 6 months to be able to shift over from living “month to month” to a “live off last month’s income” format.
What you do is slowly save a full month’s income, and when that’s ready you make the switch.
On the month you switch tactics you’ll live off the money you saved up, and then when the first of the next month comes around… you’ll have (hopefully) another pile of money ready to budget and spend.
Don’t know how much ‘a month of income’ is?… no worries… fill out this handy dandy worksheet to get your monthly spending number!!: WHAT’S YOUR NUMBER WORKSHEET
don't know how much you need for a month?
Snag this free worksheet, and it will help you figure it out.
WHAT ABOUT WHEN YOU DON’T MAKE ENOUGH IN A MONTH… TO GET YOU THROUGH THE NEXT MONTH?
That’s always a risk. It happens to me all the time when I don’t bring in enough to cover my base costs for the next month.
I’ve written about the system that gets me through the dry times, and you can read more about it HERE.
But what I will say is at least with this basic idea of living off last month’s income… you’ll be able to see those months coming. Actually, the dry month isn’t so bad because, remember, you’ll be living off the last month’s income (it’s the month that comes after that’s reeeeal rough).
SIMPLE?… NO. POSSIBLE?…YES.
You might be sitting there thinking: “That doesn’t sound easy at all”.
Well, once it’s running it’s actually super easy, but ya… it does take a little effort to set up. I’m not saying that it’s simple, but it’s not impossible.
But is it ‘easy’ to live paycheque to paycheque?
Is it ‘easy’ to deal with the uncertainty of every month wondering if you’re going to make it?
What’s ‘easy’ is assuming that things always have to be this way.
That’s the hard truth.
Want to start getting control of your money? How can I help?
Financial Planner/Opera Singer
Money never came naturally to me. In fact… I was a bit of a disaster. I remember (very clearly) what it feels like to be ‘financially out of control’.
And honestly, I still get stressed about money… that doesn’t stop… the difference is that now I have the tools to deal with that stress.
And those tools are what’s made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.