There are a lot of perks to running a side business. Earning extra income can make you less dependent on your main job to pay the bills while building up marketable skills. Since you have all the extra cash flow, you’ll want to spend it wisely. Here are some strategies to deal with the variable income to make the most of it:
Don’t Rely on the Income
If you’ve created a side business, you’re probably bringing in income you’ve never had before. It’s a great opportunity to build wealth since you don’t rely on the money to pay for your current living expenses.
Since the funds are from a business, it’s a less reliable source of income. Be wary of using the extra income to increase your lifestyle in permanent ways like buying a larger house or a fancy car. Income from a business can be extremely volatile, and it might dry up some day. If you really feel the need to splurge every once in awhile, try to do fun things like taking a fancy trip or buying a gadget. Just don’t add something to your spending that becomes a permanent part of your budget. The money could dry up, and you’d be stuck still paying the bill.
Invest for the Future
Investing for the future is a great way to use your extra income. Debt repayment goes a lot faster when you can shovel extra money at it every month. You can also tuck the extra money away in retirement plans like a solo 401(k), SEP IRA, or a SIMPLE IRA. Paying down debt or allocating the money for investments gives your future self more flexibility and opportunity.
Beyond improving your own personal finances, there are other ways to invest for your future. You can keep the money in the business to grow, so you’ll be able to build a bigger income in the future. Saving up a really big emergency fund can give you the opportunity to make lateral shifts in your career.
If you want to invest but still feel the urge to splurge, pick a small percentage of the money to spend on fun. If you save 75% of the income and spend 25%, you’ll still be far ahead with building wealth.
When Your Business Grows
While it might be feasible at first to just save the extra income, as your business grows, you might cut back on your full-time job to devote more time to the business. At some point, you might need to use the business income to pay for regular bills. When the variable income of your business becomes a larger part of your cash flow, use these strategies to wisely handle the variable cash flow.
First, make sure to separate your essential bills from the ones that can vary from month to month. When you have a month with less income, you’ll be able to pay the essentials first and put off less necessary expenses to a later time.
It’s also a good idea to always keep a buffer in your checking account to pay monthly bills. A client could pay late, and you don’t want to be late on your bills. A big emergency fund will also help in case the business environment shifts and work dries up.
Variable Income from a Side Business
Variable income from a side business can be a huge opportunity to build wealth. If you limit splurges and use the extra income to invest for your future, you’ll be creating more freedom for yourself. Once your business grows, you can manage your cash flow to make the variable income of a business easier to handle with your personal finances.