Coping with Unexpectedly Less Income

In my previous corporate life, our compensation had two major components, a salary and an annual bonus based on performance, both personal performance and company performance.  The salary was of course predictable (and didn’t really increase or decrease), but the bonus portion was highly, highly variable, often depending on things outside of my control like big losses in another division or major exchange rate fluctuations.  The unpredictability caused me to plan relatively conservatively for bonus time, not counting on a fixed amount until it was actually received.  Since leaving the corporate world, I don’t receive the performance bonuses anymore, but unfortunately, I still have some unpredictability in disposable income in the form of unexpected increases in expenses, uncollected receivables from clients, and a general decrease in freelance projects.  Although this year is better than the 2008 period, revenue for me is running below expectations.  Fortunately, dealing with unpredictability is not that new.  Unfortunately, it looks like a lot of people are dealing with income declines.  Here are some things I am doing this month and next:

--I’m contacting all of my clients — including those who are behind on paying, and seeing if there is any way to optimize a payout (breaking it up into installments for example) or if there might be a barter situation that could help them.  Although this doesn’t bring in cash, sometimes bartering for services or equipment is a compromise that helps to clear out an invoice and probably help your client as well.

–I rework the budget as soon as I expect income to decline — starting in the summer of this year, it looked like things were not going so well for a number of areas, and for any businesses highly dependent on Europe.  I re-worked the monthly budget in July to try to incorporate this view.

–I am vigilant about maintaining cash — I used to maintain a really slim cash buffer of only a month or two worth of expenses, but after several episodes of unpredictable revenue, I realized that a higher cash buffer would be better.  I try to keep at least 6 months of expenses in liquid, accessible form.

–I look  for opportunities to replace income — this is of course the most challenging step, but finding ways to diversify income, such as trying to find new clients or applying for new free-lance positions is one of the best ways to keep revenues from declining too much.  Keep in mind that a number of volunteer opportunities can turn into paying opportunities.

shared at Works for Me Wednesday and Frugal Friday