Budgeting and Living with a Variable Income
“Be careful what you wish for…”
Any entrepreneur who’s made the leap from side gig to self-employment knows that the old phrase “be careful what you wish for, because you just might get it” sometimes applies. Even if you have a successful company and you’ve learned how to handle all of the high-quality problems present in chapter 5, there will still be some sacrifices of entrepreneurship that simply come with the territory.
Chapter Six is learning how to handle those sacrifices in the most efficient ways possible.
Handling Monthly Budgets
Unless your business is so large and predictable that you can cut yourself a salary, you’re going to have to figure out how to create a monthly budget on a variable income.
- Create your list of monthly expenses. It’s best to do this using a set of note cards or an Excel spreadsheet so you can move each entry around later. Log every single monthly expense you can think of. Being self-employed, you should include the necessary items—like paying taxes—as part of your monthly budget. (Moneyfor20s even recommends that you include saving 10% of your income as an expense).
- Rank your expenses in terms of importance. Taxes? Rent? Food? Those are all the obvious necessary items. Keep organizing your list of monthly expenses until you’ve tracked down what really matters—and what doesn’t.
- Take a look at your most recent months and determine the least you’ve made in a month. This is your new “minimum” income. Hopefully, your expenses should match this minimum income, giving you flexibility for savings and other expenses when you make more money than your minimum.
Crafting a monthly budget on a variable income requires become comfortable with a little bit of uncertainty. Mint is an excellent and easy to use tool for managing your personal funds. But if you take enough steps and are thorough in your tracking of expenses, you should have no problems knowing where your full-time gig stands.
Dealing with Spousal and Family Issues
In switching from a part-time gig to a full-time job, one of the most important obstacles to overcome may not have anything to do with your professional life. It might just have to do with your personal life.
This is especially true for those of you who have a family to support.
The most important thing? Everyone in your family should be on board with your decision.
“My husband and I had discussed the possibility for a long time,” says Kaleigh Friend of Unexpected Consultancy. “I had support at home and knew what tools I needed to support the business side.”
That’s a recipe for success—aligning both your personal and professional lives to one specific goal.
It’s also helpful if your spouse has a stable job. This reduces variability in your household income and gives you both an “anchor.” Sometimes, spouses can share other benefits, such as health insurance, through one of the spouse’s employers.
What’s more, you can even include plans for dealing with spousal and family issues before you make the jump. Emily at OneTrailingSpouse.com mentions that spending free time doing things that are good for your emotional health—joining a gym, reading, taking a yoga class—can help you smooth over your personal life when stress at your new full-time gig gets a little hot.
The most important thing is to have these issues addressed as part of your overall strategy in moving from part-time to full-time in your gig.
What to Do When No New Work Comes In
The scariest thing about living on a variable income is considering the possibility that work will dry up.
Even successful entrepreneurs have this fear. Even entrepreneurs who have been successful for years on end have this fear.
There are a few steps you can take when you notice new work starting to dry up:
- Get out of your comfort zone. If you’ve made a living off of a certain type of client, it might be time to move to a new level. Are there bigger clients to pursue? Are there networking opportunities you’ve avoided? Get out of your comfort zone if you want to find something new.
- Focus on networking events. Adjust your focus to getting the word out, rather than gaining new customers and clients. Go out to networking events in your town or city to talk shop and spread the word.
- Build continuously over time. Embrace the idea of constant improvement. There is always something you can be working on, even when business is slow. Expand your portfolio. Enhance your web presence. Follow up with old clients. Do data entry.
- Don’t put all of your eggs in one basket. If you’ve depended on one single source of new clients and customers for your business, then you’re not casting as wide a net as you can. It’s fine to draw a majority of your customers and clients from one source, but if you can depend on a range of sources, you’ll have a more profitable and reliable business.
Never Let One Project Get Too Big
Large customers and clients can be a great blessing. The work you give them can take up a lot of your time, sure, but the reward is that their money keeps you afloat and prospering.
But what if one single client, one single customer, or one single project gets too big?
This is a very real problem. An unhappy client to whom you’ve promised too much can mean a lot of hours, little thanks, and the feeling that you don’t have any more control over your professional destiny than you did as a full-time employee at your previous company.
The best way to avoid this problem is to nip it in the bud. Prevent it from happening. Ask for upfront fees and deposits for your services. Hold clients to high standards, and expect them to behave themselves. Don’t be afraid of losing any one client thanks to your strict rules—most often, they’ll simply “get in line” rather than abandon you. And when they do abandon you, let them go—it might not have worked out anyway.
Tim Ferriss, author of the 4-Hour Work Week, advocates “firing” clients who cause too much stress and provide too little money. His suggestion? Give them a “warning” first, and tell them that if they don’t get in line, you’ll be forced to terminate the business relationship. From there, you’ll always be in control—even with a variable income.