Variable Income Budgeting: The Rollercoaster Fund

graphic image of rollercoaster fund budgeting tool

Inconsistent and variable income is just a fact of life when you are self-employed, especially in creative industries.  Highly Variable Income puts you into one of two general categories of self-employed small business owners. Let’s dive in to the topic with an exotic wild animal theme today!

Note:  this tool for managing variable income is usually called a ‘Hill and Valley’ Fund, but I like ‘Rollercoaster’ better as a name, because wheeeeeeee!

Some self-employed people have regular variable income, such as I do in my massage practice (when not on pandemic leave).  Most weeks, I can count on approximately $1,100 gross income.  Then every couple of months, a $2-6,000 bump in income happens when a couple clients purchased a package in the same week.  But my baseline income stays pretty steady.  

However, if you’re an exclusive web designer, let’s say, you might get an initial $20,000 deposit on your total fee, and then not see any more income for 2 or 3 months.  This qualifies you for the highly variable income category (yay?).

I trust that you’ve already read the 7 streams of income blog posts that are out there, and are working on leveling out your income.

But in the meantime, if you have highly variable income, your most valuable money management tool is the Rollercoaster Fund.

How a Rollercoaster Fund works

A rollercoaster fund is a rolling sinking fund for your everyday business operating expenses.  When your income is high in a given week, you contribute as much as needed to your rollercoaster fund.  

When you have no income in a given week or month, you will need extra funds to meet your budget.  When this happens, you withdraw money from your rollercoaster fund to cover your necessary expenses (and occasional cheese or chocolate-related treat). 

What a rollercoaster fund is NOT

It’s not your emergency fund.  Your emergency fund is built up to simply sit there, looking pretty, giving you a sense of peace, and earning a teensy bit of interest in a checking account or money market account.  It’s your self-funded insurance for when things go pear-shaped.  You build up your emergency fund until finished, alongside building and using your rollercoaster fund.

It’s not your checking account buffer, which is an amount that stays in your checking account regardless of every day banking activity. It’s there for unexpected expenses. You will have a line in your budget for both your checking account buffer and your rollercoaster fund.  

How to set up your rollercoaster fund

  1. When you’re ready to start building up your rollercoaster fund, choose or open a savings account at your business bank to use.  
  2. Next time you get a larger payment, or have several hundred extra when you get to the 4th section of your budget, set aside a certain amount of money to begin your rollercoaster fund when you budget next.
  3. Continue setting aside extra income until you have at least 3 months of minimum business expenses (including paying yourself) in your rollercoaster fund.
  4. Start pulling money from your rollercoaster fund as/when you need to cover your budgets.
  5. Keep contributing whenever you can in order to maintain that minimum level in the fund.

There are a bunch of essential money management tools that help your solo small business run well. 

Rollercoaster funds allow you to create that more stable income for yourself, when client payments vary greatly. It smoothes things out – keeping things fun – during the ups and downs.

Questions?  Excitement to share?  The comment section awaits you below!  I read and respond to each one <3