Many small business owners experience irregular income—one month’s profits soar, while the next month, business slows to a crawl.
This unpredictability makes it difficult to plan, pay bills, hire staff, or reinvest in your business. It is crucial to account for all the money coming in before planning expenses, ensuring that fixed and essential expenses are covered first.
Fortunately, there are strategies to help you thrive, even with variable income. In this article, you’ll discover actionable steps to manage inconsistent cash flow and achieve financial stability.
You’ll also learn how to automate savings with Relay Financial and how to leverage Jamie Trull’s new Deluxe Cash Flow Forecasting Template to stay ahead.
Understanding Irregular Income
What is Irregular Income?
Irregular income refers to earnings that are not fixed or steady every month. This type of income can come from various sources, such as self-employment, freelance work, commission-based jobs, or selling products online.
Unlike a regular paycheck, which arrives predictably, irregular income can vary significantly from month to month, making it challenging to budget and manage finances.
Fluctuating income means that one month, you might earn a substantial amount, while the next month could bring in much less. This unpredictability can make it difficult to plan for both short-term and long-term financial goals.
Additionally, variable expenses—those costs that change from month to month, like groceries, entertainment, and travel—can further complicate financial planning.
Understanding the nature of irregular income is the first step in managing it effectively. Recognizing that your income will not always be consistent allows you to prepare and implement strategies to smooth out the financial ups and downs.
Why Irregular Monthly Income Can Be Stressful
When income fluctuates, business owners may face difficulties like:
- Uncertainty about paying employees and vendors.
- Inconsistent cash flow leading to delayed investments or missed bills.
- Taking on debt to bridge the gap during slow months.
Covering essential expenses can significantly mitigate the stress caused by irregular income, ensuring that necessary costs are always met.
To counter these challenges, it’s essential to build a system that prepares you for both high and low-income periods.
Assessing Your Financial Situation
Calculate Your Average Monthly Income
To manage irregular income effectively, it’s crucial to calculate your average monthly income. This calculation helps you understand how much money you have available to spend each month, providing a clearer picture of your financial situation. Here’s how you can do it:
- Gather Your Income Records: Collect all your income records for the past year, including pay stubs, invoices, and bank statements.
- Total Your Annual Income: Add up all the income you received over the year.
- Calculate the Average: Divide the total annual income by 12 to determine your average monthly income.
For example, if your total income for the year is $50,000, your average monthly income would be $4,167 ($50,000 ÷ 12). This average gives you a baseline to work with, helping you plan your monthly budget more effectively.
Identify Your Monthly Expenses
Identifying your monthly expenses is a critical step in managing irregular income. Your expenses can be divided into two main categories: fixed expenses and variable expenses.
- Gather Financial Documents: Collect your bank statements, credit card statements, and receipts for the past year.
- Categorize Expenses: Separate your expenses into fixed expenses (like rent/mortgage, utilities, and car payments) and variable expenses (like groceries, entertainment, and travel).
- Calculate Totals: Add up the total amount spent in each category.
- Identify Savings Opportunities: Look for areas where you can cut back on unnecessary expenses.
For instance, if you find that you spend $1,000 on groceries each month, consider reducing dining out or canceling subscription services to lower your overall spending.
By understanding your monthly expenses, you can create a more accurate and manageable budget, even with irregular income.
By calculating your average monthly income and identifying your monthly expenses, you’ll be better equipped to manage your fluctuating income and make informed financial decisions.
This approach helps you plan for both high and low-income periods, ensuring greater financial stability for your business.
1. Build a Rainy Day Fund
A rainy day fund acts as a cushion during months when revenue dips. Unlike emergency funds, which are reserved for unexpected crises, a rainy day fund gives you flexibility during common slow periods.
Calculate Your Average Monthly Income
When calculating your average monthly income, it’s crucial to also estimate a minimum monthly amount. This approach provides a safety buffer, allowing you to manage your spending by prioritizing essential expenses and saving strategically, especially during periods of irregular income.
Identify Your Monthly Expenses
Understanding the minimum monthly amount of essential expenses is vital. This helps in creating a more reliable financial plan by ensuring that you can cover your baseline costs even during times of irregular cash flow.
How Much Should You Save?
Aim to save 1 to 3 months’ worth of essential operating expenses. Look at your recurring costs—such as rent, payroll, and software subscriptions—and exclude one-time expenses (like conference fees). Jamie Trull suggests calculating your monthly run rate by averaging your annual expenses and dividing by 12.
Consider using any excess income to build a rainy day fund. This can help you manage irregular or infrequent income streams and ensure you have a financial cushion during months of higher earnings.
For example:
- If your total annual recurring expenses are $120,000, your monthly run rate would be $10,000.
- Save $10,000 for one month of expenses, or $30,000 for three months.
This fund helps you avoid borrowing or going into debt to keep operations running smoothly.
2. Automate Savings with Relay Bank
Building a rainy day fund is easier when you automate your savings. This is where Relay Financial comes in. Relay offers no-fee business banking and allows you to open up to 20 checking accounts to organize your funds. You can automate transfers to your rainy day fund, ensuring that savings grow without needing manual input.
Maintaining a healthy balance in your bank account is crucial while automating savings. This helps prepare for unexpected expenses and ensures financial stability.
For example, you can set Relay to transfer 10% of every payment you receive into your rainy-day account. Automating your savings prevents you from accidentally spending money meant for future expenses. Relay also allows you to set up accounts for tax savings, payroll, or reinvestments, making it a powerful tool for managing cash flow.
Bonus Offer: Use this link to open a Relay account and receive a $50 bonus after depositing your first $100
3. Forecast Your Cash Flow for Better Planning
Forecasting cash flow is one of the most effective strategies for managing variable income. A forecast allows you to anticipate when cash will come in and go out, helping you avoid surprises.
Recognizing and planning for monthly bills is crucial in cash flow forecasting, as it ensures that fixed and nondiscretionary expenses are prioritized over discretionary spending.
Jamie Trull offers a Cash Flow Forecasting product that can help you map out your income and expenses with precision. By using this tool, you can:
- Predict when slow periods are likely to occur.
- Prepare for upcoming bills by aligning them with expected revenue.
- Make better decisions about when to hire or reinvest in your business.
Learn more about this tool and gain control over your finances by checking out Jamie’s Deluxe Cash Flow Forecasting Template.
4. Tie Your Expenses to Revenue
Another way to reduce financial risk is to link expenses to income. The more you can structure expenses as variable costs—rather than fixed—the better.
For example:
- Salaried employees are a fixed cost, meaning you pay them the same amount regardless of sales.
- Hourly contractors or commission-based employees, on the other hand, align with revenue. When sales slow down, so do their costs.
Tracking and adjusting spending habits to align with revenue is crucial for better financial management and planning.
If possible, use commission models or hire contractors for tasks that don’t require full-time employees. This approach gives you flexibility when revenue drops.
5. Get Creative with Revenue Streams
Diversifying income streams helps reduce the impact of seasonal fluctuations. Here are a few ideas:
- Seasonal businesses (like summer camps) can offer team-building activities for companies during the off-season.
- Digital courses or subscription memberships create recurring revenue throughout the year.
- Product bundles or pre-sale campaigns can provide cash flow in advance of product delivery.
Utilizing any extra money from these diversified income streams for savings or investments can significantly improve financial stability, especially for those with irregular income patterns.
These strategies allow you to generate income during slow periods and smooth out revenue throughout the year.
6. Forecasting: The Key to Long-Term Success
Forecasting your income and expenses isn’t just about tracking what’s happening today—it’s about planning ahead. Cash flow forecasts help you:
- Identify gaps between income and expenses.
- Schedule vendor payments to avoid cash shortages.
- Make better decisions about when to expand or invest in new products.
You can forecast weekly, monthly, or quarterly, depending on your needs. Using tools like Jamie Trull’s Deluxe Cash Flow Forecasting Template makes this process simple and actionable. Get your forecast started today by exploring the template here.
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This is an unedited video transcript. Please excuse any grammatical errors or conversational quirks.
Video Transcript: How to Build Financial Stability with Inconsistent Income
Introduction
Imagine this. You’ve just finished a great month—clients are happy, invoices are paid, and everything seems to be running smoothly. But the next month? Silence. Sound familiar?
How are you supposed to hire employees, pay bills on time, and grow your business with inconsistent income? Stick with me, because by the end of this video, you’ll have practical strategies to build financial stability no matter how unpredictable your revenue may be.
1. Build a Buffer Fund (Rainy Day Fund)
The first step to managing inconsistent income is to build a buffer fund. You might think of it as an emergency fund, but I prefer to call it a rainy day fund. Emergencies make it seem like the sky has to fall before you can use the money—but rainy days? They happen all the time.
A rainy day fund means putting aside money during the good times—so when things slow down, you have cash reserves waiting for you.
How Much Should You Save in a Rainy Day Fund?
You want at least 1 to 3 months of operating expenses saved in your fund. This won’t happen overnight, but little by little, you’ll get there.
Start by averaging your monthly indirect expenses—like rent, payroll, and software subscriptions. Skip one-off costs (like conferences). If your recurring costs are about $10,000 per month, aim to save $10,000 to $30,000 over time.
2. Automate Your Savings with Relay Financial
Do you need multiple bank accounts to manage these funds? Not necessarily—but there’s a tool that makes it super easy: Relay Financial.
Relay allows you to open multiple accounts for free and automate transfers between them. Want to set aside 10% of your income for a rainy day fund? You can automate it.
With Relay, you can create accounts for specific purposes, like tax savings, payroll, or owner’s draws—all while avoiding fees.
Special Offer: Use this link to open a Relay account, deposit $100, and get $50 as a bonus.
3. Align Your Expenses with Revenue
Try to tie expenses to income as much as possible. For example, a salaried employee’s pay remains constant, even during slow months. But hourly contractors or commission-based staff adjust with your business flow, which makes managing expenses easier.
Whenever possible, align costs with income to reduce financial stress. This isn’t always practical, but thinking creatively—like using freelancers or performance-based pay models—can help.
4. Diversify Your Income Streams
If your business is seasonal or experiences peaks and valleys, consider diversifying your revenue streams.
For example, if you run a summer camp, offer team-building retreats during off-seasons to keep revenue coming in. Alternatively, convert one-time services into subscriptions or memberships—giving you more predictable cash flow year-round.
Digital courses and products are also great for generating passive income in slow periods.
5. Manage Cash Flow with Forecasting
Forecasting helps you predict future cash flow issues and plan accordingly. Create a weekly or monthly cash flow forecast to track when money will come in and when bills are due.
If you need help setting this up, grab my free profit planning template. It’ll help you allocate funds toward savings, taxes, and investments in a way that aligns with your goals.
Conclusion
With the right strategies, you can manage variable income, stay ahead of cash flow issues, and pay yourself consistently—even when revenue fluctuates.
To build financial stability, set up automated savings accounts with Relay, align expenses with income, and diversify your revenue streams. Use my tools and templates to forecast cash flow and grow your business with confidence.
Ready to take control of your finances? Open your free Relay account today through this link and get $50 when you deposit your first $100!your income may be.
