As a freelance / consultant / human-for-hire, I stress about money / income a fair bit. I’ve chatted to a few people recently about what numbers I watch to make sure I’m doing okay.
I did Maths at university, then spent four years working in the finance business. So maybe it comes as no surprise that I enjoy a good spreadsheetin’. A mix of things I learned there and recent philosophical-ish reading and musings lead me to think about a few things:
- take the long-term view;
- keep the worst-case scenario in mind;
- look at a range of possible outcomes.
Before I started full-time consulting again, I did a nice, big, complicated, set of calculations. I took into account sick days, holidays, time not working, the annual salary I wanted to earn, and more. But what I want to talk about here is what numbers I watch to see if I’m doing okay financially.
- an all-time monthly average
- a (rolling) last-12-months monthly average
- tax year to date monthly average
- number of weeks I need to work the rest of the year
Take the long-term view
The all-time monthly average gives me a long-term view. The last-12-months monthly average gives me a medium-term view. Both are these are handy to keep my money anxiety in check because month-to-month income can be quite variable.
If it’s a slow month, and I was on holiday for two weeks, the recent months’ average can look scary-low! Looking at the medium- and long-term views reminds me that things are likely to pick back up and average out okay.
Keep the worst-case scenario in mind
Looking at the tax year to date early in the year keeps my eye on the worst-case scenario. What if I get no more work this year? How bad will things be? Looking at it later in the year is usually not so scary.
Look at a range of possible outcomes
The number of weeks I need to work the rest of the year to hit my target is a quite handy for a long-term view and for a worst case scenario reminder. But for me the most useful part is the range. I keep a low, a medium, and a high target monthly salary. The three salary targets give me three potential weeks-to-work, like: 19, 22, 26. I calculate the percentage those weeks are of the rest of the year, but I tend to just eyeball it: is more like 3 weeks a month or 4 weeks a month for the rest of the year?
I find that these numbers let me make a more informed decision about the rest of the year. They help me see the trade-off between money and time more clearly. Do I want to work a bit more and try and hit the higher income target? Or do I want to work a bit less and have more time to do other things like talks and workshops or take photos of weird abstract things or spend a bit more time reading?
That’s how I keep an eye on where I’m at. How’s the the long-term view looking? What’s the worst-case scenario? What’s the range of outcomes?
How do you keep an eye on your business’s financial health?