1. Not having a plan for every dollar from every paycheck.
Being on a variable income, for example, in a sales role can be one of the biggest blessings to your financial life, or an absolute curse. The great thing about having a variable part to your income is that it gives you a financial incentive to get up and go kill something every day.
I love the idea of commission or bonuses to shoot for. From what I’ve seen, people that get paid the same no matter what they do eventually become the people that just show up for a paycheck.
The great thing about getting the same paycheck no matter what you do is that it’s easy to plan for expenses. But, if you are an internally motivated person, this can lead to dissatisfaction and disengagement in the workplace.
When you are on a variable income, there’s nothing more important than tracking what’s coming in and going out. That’s the only way you can know what your baseline income needs are.
Why is this important?
You have to be able to know what your minimum monthly expenses are. What does it take you to live? Then you have to make sure you’re making more than it takes to live so that you have money to save and invest in your and your families future.
The most common failure that I’ve see from people on commission is that they have no idea of what their minimum expenses are to pay the bills.
They drift from day to day and month to month hoping that they sell enough to pay the bills.
If they don’t, they do something stupid like put their bills on a credit card. If you’re doing this, you have to stop this now! You’re basically activating the clock on a ticking time bomb that you have no idea when it’s going to blow up. This behavior has nothing to do with your income in my experience. I've helped with 200k+ in income deal with the same behavioral challenges as those making 75k.
Three simple steps you can take to help you move forward from this mistake are:
1. Write down the minimum payments on all your bills.
2. Pull the last 3 months of pay stubs/bank statements and add up the total amount of income you made after taxes and divide by 3 and see what your monthly income has been trending.
3. Take your monthly average income, and subtract your minimum monthly expenses.
Is the number positive? GREAT! We can make some progress!
If the number is negative, you have to have a serious talk with yourself and your spouse if you are married. You have to figure out a way to get your income up above expenses. This may be through a side hustle? You may have to work more hours in the office or making sales calls? You may need to learn more about the product and services you are selling so you can better help your clients make a smart decision to purchase with you?
What you shouldn’t do is fail to take ownership. If there’s someone in your company that’s doing better than you, it is your job to find out what they are doing. Buy them lunch and ask them what they are doing that is making them successful. Shadow them on sales calls to learn their best practices. To put it simply, don’t just hope IT gets better. Create a plan so YOU get better.
2. Not having an emergency fund.
Once you start getting some control over your income on a monthly basis, the next step is to save for an immediate emergency. This is just a small amount of money so that if you blow a tire or have a small breakdown you don't go right to your credit card. What I recommend for this step is usually 1000 dollars up to 1 months expenses to start with a goal to get to 3-6 months expenses. I would recommend leaning toward 6 months if your income is highly variable.
3. Not having a ‘bad month’ fund.
Being on a variable income, you’re inevitably going to have some up months and some down months. This is not a big deal if you are prepared and will adjust with the seasons. What I recommend for this is having a fund that you keep separate from your other accounts to fill the gap on bad months. Keep this money in an account that takes at least a day or two to transfer so you’re not pulling on it regularly. This account is meant for when you are reconciling at the end of the month and you realize you’re going to come up short. Keep track of how much you transferred over, and add that amount to your base expense requirement for the next month and replace this as soon as you get your first check.
Since I’m a big fan of having the ability to earn what you’re worth, being on a commission or bonus structure can be highly beneficial for the motivated person. But, it can also be a curse if you’re not prepared and don’t handle your financial life like a business. Keeping track of income/expenses, having a plan and preparing for emergencies are just as important for our personal lives as they are for our businesses.
If you like this blog and want more tips for staying out of trouble as a business owner or someone on a variable income, either leave a comment or email me at firstname.lastname@example.org.