How Much Money Do You REALLY Make?

Whether you have a side hustle that brings in fluctuating income, or payment from your full-time job can vary from month to month, you’ll need to go the extra mile to figure out what your actual income is.

I have quite a few friends, my husband included before he moved into his current position in finance, that worked/work in theater and the film industry. In addition, I currently earn a chunk of my personal income from freelance writing work. All of these jobs come with a fluid income — that is you can get a windfall one month, and then nothing for the next three.

The problem this creates for some people is a false sense of making a lot more than they actually make (in the months they get an actual check). Several years back someone told me that she was so excited because she was making close to $2500 a week with her film job. She went on an elaborate vacation, bought a new car, and thought about up-sizing her home with her new hefty income. Then, in her next breath she told me she was so relieved to have gotten called to work this gig because she hadn’t had any work for three months.

I asked her how long her current position was going to last and she told me about 2 to 3 months, and then she would likely be off again for another couple of months. Yet, here she was acting like she made about $10,000 a month since that’s what she was bringing home at the moment.

Unfortunately, this is a trap for many people, unless you take a few extra steps to determine your real average income. If you’re putting together a budget, or spending plan, or whatever you want to call it, you need to know what is coming in each month and what needs to go out so you have a clear picture of what you have left over to build your future and live your life.

It just takes a little leg work, nothing overly complicated. You simply need to take the total of what you make in a year (on average) and divide it by 12 to get your average monthly income.

Let’s use the example above of the woman with the cushy film job. She was making about $10,000 a month for at the most three months. This is undoubtedly a nice chunk of change to bring home. Remember though she had not worked for three months prior and would likely be off for another three months before landing another job. Therefore, at the most, she would be working about six months of the year. If she landed the same rate of $10,000/month that would be about $60,000 for the year. Divide that by 12 and you get $5,000 a month (before taxes).

This is a great income; but it is half of what she was acting like she made. When she spent each month she worked as if she made $10,000 a month, it left her little in the months she was off, and in those months she would inevitably end up racking up debt and wonder what on earth the problem was since she made good money.

In situations with fluid income, give this a try:

–Figure out your true average income based on the above example.

–Then, in the months where you bring home your checks, only live on your true average, put all the excess in a savings account.

–In the months you are not working, pay yourself your true average income from your savings account.

Sounds pretty simple on the surface, doesn’t it? But, it does take self-discipline and creating a new habit with your money. Of course, things will vary here and there, but this will at least give you a sense of more predictability and control when it comes to your income so that you can put together a functioning plan for your finances. This way, you’ll be able to always know where your money is going, instead of trying to figure out where it went.

Do you deal with unpredictable or fluctuating income? What are some systems that work for you? Share your advice in the comments! 🙂