Ask an Anchor: How do I handle my inconsistent income?

Hi Sarah,

I have a lot going well in my business, but I know that I'm missing things when it comes to my finances and accounting. Whenever I focus on the money, I feel out of my depth. 

Part of my issue is that my income is so inconsistent month-to-month, some advice about money doesn't feel like it applies to me. I often feel alone and like I’m having to make all of this up by myself. How can I set something up that works for me -- not a generic business?

Thank you!

Atypical Money Concerns

Dear Atypical Money Concerns, 

Ah yes. The old “is there a way to predict the future” question. I LOVE this question. It means you’re doing this right. You want to understand how your business is functioning, and how to strategically think about your business from a financial standpoint.  

You've outlined what most business owners, and people in general, feel all the time: like they're in the dark and they're not doing “it” right (whatever that “it” is).

The quick answer is you’re right! There isn't a specific formula that will work for everyone across the board. Not because there aren’t templates or age-old spreadsheets, but because each person learns and digests information differently. 

Just remember that there are tools you can implement to create a system that makes you feel comfortable and in control. If this is the last sentence you read, please read it carefully: You want to understand the reality of your spending (look back a few months and start to see your patterns), and you want to know what your earning potential (or actuality) is. Inflow, outflow and the balance of money after. 

Managing money is a very tender subject. 

Unless you were extremely fortunate, you were probably not taught about the strategies of having, saving, and increasing the value of the money you have on hand. I am not always great at managing my own money (business money is on lockdown, but personally, it's still a struggle to make sure I'm buying want I need, not just what I want.) I have debt (starting a business is complicated), I've struggled with cash flow (tough lessons in my own value), and I've spent money that I shouldn't have (damn you beautiful shirts by independent makers!) This truth needs to be out in the open because I want you to know that you're not alone. The struggle with understanding your relationship with money goes deep into one's relationship with their parents and their parent's relationship with money and … you get the point. You CAN heal your relationship with money, and you can be good at managing it -- it just takes a little rewiring.

I am not a financial adviser (that's a certification and degree), but I am a teacher who believes in presenting information in as many ways as possible when it comes to money. The reason I now understand how money works in business is that I studied entrepreneurship and applied those principles to my life. Theory and practice have a tendency to be hugely different, so I used that foundation of knowledge and remained flexible in the reality of business situations. From there, I created my own theories and systems to teach money understanding. 

What I know for sure: Even if you have a perfect brand or product or marketing campaign, without understanding what your money is doing, you're going to feel stuck forever. We ALL feel out of our depth sometimes. There is so much to understand. I encourage you to talk to an investment adviser and join a credit union that will help you open a 401k, IRA, HSA, and more. Prioritize those, and everything else will start to make more sense. 

To answer some of your questions … 

#1: Valuing your work 

What kind of product are you giving your clients? For example, are you creating a brand that will propel them to the next level, i.e., make them more money? Or will what you're doing level up your company and theirs at the same time? Consider the VALUE of your work in the present and in the future. Ask your clients about their own financial goals in regards to the value that you're creating for them. Read “Breaking the Time Barrier” by the Freshbooks team. It broke my brain in the best way. 

#2: Understanding what you NEED (and want) 

Listen carefully - you deserve all of the good that life can bring, including your dream income and the security (and fun!) that comes along with it. Taking time to understand your value can trigger a conversation about how much time you actually have available but MOST importantly it *should* bring up the question: “What do I actually need?” I highly encourage you to look at what you spend on a weekly, monthly, and yearly basis and make decisions based on that reality. 

#3 Solving inconsistent income

Some say the solution for inconsistent income is to create consistent income -- I agree! Find ways to create a baseline income so you can, well, enjoy yourself. Anticipating what type of income month or quarter you're having to help you pitch and look for work is one way toward consistency. 

Inconsistent income can also be a blessing! I also think that inconsistency is the way that this whole independent business game works. The freelance community is growing every day -- people are realizing the value of owning their time, finding atypical mentors, shifting their careers, and of course, motivating themselves outside of a boss/employee relationship. I agree with where your question was going -- to make this fun, we need a sense of control.

#4: Building control & consistency through spreadsheets

To create some sense of control and consistency, I would suggest you start a cash flow spreadsheet for yourself. Before doing that, hone in on your assignment above (#2), which is to understand what you need to make. Some grit is required here, especially if you need to make a certain amount of money to survive (i.e., no one else is supporting you.) I have always made sure to find a way to pay rent and all of my expenses every month. In the beginning, it was babysitting in the afternoons after seeing my first few clients. That side hustle to supplement my passion was a lifesaver, but once it got in the way of having more clients, I kicked it to the curb. 

Cash flow is the act of money going in and out of your business (it's quite a literal term.) Your cash flow includes the money that you want to set aside for taxes and potentially a little profit to start building your nest egg. Tax savings should be at least 25% and if you can afford it, 30%. If you have to pay less than what you've set aside, yay! You get to give yourself a bonus.  

I hope the above inspires you to talk about money and dive deeply into creating systems and plans that make you feel most comfortable. 

If you want to take a close look at your cash flow, I’ve created the Cash Flow Cleanse -- a new kind of money workshop for business owners. The next workshop starts on August 22 and I’d love it if you joined us.


Do you have a question? Ask!

See the archive of Ask an Anchor