The Importance of Aging Your Money When Your Income is Unpredictable
Budgeting With Irregular Income: Part 7
We can’t change the fact that you don’t know exactly when or how much you will get paid, but we can teach you to be in total control of your money, and stop stressing about it! This eight-part series will teach you exactly how to budget successfully and get ahead, variable income and all.
On this, our seventh round of convincing you that you and your variable income need a budget, we’re going to talk about aging your money.
Unlike so many other areas of life (why, yes, I am still 29, thank you very much), when it comes to your money, the older, the better.
What we mean is, you want to extend the time between when you receive money and when you spend it. And although you might not have thought about it quite like this before, it makes a lot of sense.
For example, if you earn money in September, but still have money left from the work you did in July, it’s going to feel great. You have breathing room. You aren’t juggling the timing of your bills. You can look toward the future. You have breathing room, allowing you to make better decisions. You aren’t always one step behind.
It might not happen overnight, but the goal is to live off of money that is at least 30 days old. And here are three significant benefits that make this a goal you want to pursue with everything you’ve got:
Less Mental Overhead
You know that feeling of mental math? Like, “Well, I think I can cover this bill, once that next invoice is paid, and then I might be a couple days late on rent, but I think my landlord will let it slide this time….” Juggling your bills and deferring due dates, and praying that checks clear before your online bill pay goes through—it’s a big headache. It’s a big waste of time and energy that could and should be better used thinking about your creative work or how to grow your client base.
But when you age your money, you are spending money you earned at least a month ago. You don’t have to worry about timing or due dates for a second. You just get a bill and then you pay it. Rinse and repeat.
Aging your money is a process that starts little by little. When you get paid, and you are assigning every dollar a job, try to give some dollars (even if it is just a few at first!) a job for next month. Aging your money is an investment. So that last $200, you could use it eating out, sure. Or you could put it toward next month’s car payment.
Simply put, cash is king. If you have access to more available cash at any given time, you are in a more comfortable position.
When you have baby money (as opposed to old money, see what we did there?), as soon as you get it, you have to spend it, or even worse, you might be spending it before it’s even yours. So when anything unexpected happens—a client is late, a job ends up being smaller than you planned, or you have additional expenses—you are left scrambling. At best. At worst, you miss a rent payment or start charging up your card.
When your money is old, you are paying rent, and buying groceries, with money you earned several gigs ago. If a client is late paying an invoice, you lose out on a job, or you have to get your car repaired, it won’t feel like an emergency. You have a cushion, which gives you time to figure out the best way to recover that income, cover your bills, and source a good deal on your car. That’s security.
If your income is variable because you are a freelancer or you own a small business, you may have run up against this hard truth: You have to spend money to make money.
Sometimes opportunities to do just that come up, and if your cash flow is too tight, or you’re living too close to the edge, you have to pass.
But when your money is older, you’ve suddenly got time to consider an opportunity to invest in you and your business. You can take the time to consider giving your dollars different jobs, and see how it would impact your other priorities. Your old money buys you time to roll with the punches and move things around if this opportunity requires some overspending. But your financial security opens the door to many more opportunities, which lead to more money. It’s a pretty good cycle.
So, How Old Should Your Money Be?
For those regular, two-paycheck-a-month-folks, thirty days is a good benchmark. But with your variable income, you might be more comfortable with a bigger number. Forty days? Sixty days? You’ll discover what feels right for you.
But commit to aging your money and your future self will thank you (and have money saved to treat you to a nice dinner out!).
Next up: Part 8: No More Excuses