Entrepreneurship is a thrilling journey marked by innovation and independence, but it also comes with the challenge of managing variable income. Unlike the predictability of a fixed salary, entrepreneurs often face fluctuations in their earnings.
In this blog, we’ll explore four key tips to help entrepreneurs effectively navigate the ups and downs of personal financial variable income.
- Know Your Budget Numbers: Mastering personal finances with variable income begins with a deep understanding of your cash flow. Maintain a clear awareness of your essential expenses, encompassing taxes, rent or mortgage, utilities, groceries, and discretionary spending. When it comes to income, be aware of worst-case and best-case scenarios monthly, recognizing patterns and themes. With variable income, staying close to your numbers is crucial. Allocate a portion of your earnings to a savings buffer to ensure financial resilience.
- Fortify with a Contingency Fund: Building a “cash” fund is a prudent strategy for entrepreneurs. Set aside a portion of your variable income into a dedicated savings account to create a financial safety net. Aim to accumulate at least nine to twelve months’ worth of living expenses. This fund acts as a cushion during months when income is lower than expected, providing peace of mind and financial stability.
- Deploy Your Income Intentionally: Don’t let excess cash sit idly. Once you feel secure in your cash position, have a clear plan for deploying surplus dollars beyond your contingency fund. Consider investment opportunities and know exactly where you would allocate extra funds, whether it’s $100,000, $250,000, $500,000, or $1,000,000. Being intentional with your cash ensures it works for you and contributes to your long-term financial goals.
- Diversify Income Streams: Diversification is a fundamental principle not only in investing but also in adeptly managing variable income as an entrepreneur. Explore a spectrum of opportunities to fortify your income streams, such as venturing into alternative investments beyond your primary business, introducing new services, or launching innovative products. Cultivating multiple revenue sources acts as a strategic shield, balancing the impact of fluctuations and fortifying the resilience of your overall income.
Mastering personal financial variable income as an entrepreneur demands a blend of strategic planning, discipline, and adaptability. By understanding your budget numbers, establishing a contingency fund, deploying excess cash intentionally, and diversifying your revenue streams, entrepreneurs can effectively navigate the challenges that come with the entrepreneurial journey. Striking a balance between immediate financial needs and long-term financial security allows entrepreneurs to relish the rewards of their journey with greater peace of mind and financial mastery.
If you have a question or simply want to talk through your financial planning, we are here to help.
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DISCLOSURE: Jarrod Musick is an officer of Destiny Capital and Entrepreneur Aligned, a DBA of Destiny Capital. This article is for informational purposes only and should not be relied upon as a basis for your investment, business, or personal financial decisions. We recommend consulting with your wealth advisor, CPA/tax advisor and/or attorney, as applicable to your situation, prior to implementing any new tax, legal, or investment strategy. Advisory services provided by Destiny Capital Corporation, a Registered Investment Adviser.
Jarrod was born into financial planning and solving financial problems. With his financial advisor father Steve telling stories about finance around the dinner table from an early age, the idea that everyone has a different financial situation was always there. After an early professional career spent in nonprofit and government, Jarrod came back to his roots helping people plan and invest in 2011. Since then, he has worked with individual clients, led internal teams and ultimately became partner and the CEO of Destiny Capital in 2017. With a passion for helping entrepreneurs change the world, Jarrod ultimately oversaw the creation of Entrepreneur Aligned in 2020. With both Destiny Capital and Entrepreneur Aligned, Jarrod leads teams that help people live lives of abundance where money is simply a tool to let everyone be a positive force for the world around them. When he isn’t working with the talented teams for EA and DC you can find him chasing his twins, wily trout or a podium spot at an OCR race.