Do You Have an Income Problem? Or a Cash Flow Problem?


I think about cash flow. A lot. As a freelance writer married to an adjunct professor, my household income is sometimes a little unpredictable. In many cases, it’s not about how much we have coming in; it’s more about when the money arrives and leaves.

As I contemplate the coming summer, and the dwindling of my husband’s paycheck, cash flow becomes even more important. He’s teaching a couple of classes this summer, but the pay for them is somewhat unpredictable. It’s not the same as when he teaches classes during the “regular” school year and is paid on a set schedule.

So, I know that we’ll have the income, and that it will be more than enough to take care of our spending priorities. However, I also know that I don’t know exactly when the money will arrive (we have yet to figure out the summer payment schedule for adjuncts at this particular university). And that can make a difference.

Timing Matters in Finances

When planning your spending for the month, it’s important to consider the timing surrounding your income and expenses. I like to use my bi-weekly mortgage payments as an example of this. My mortgage payment is going to come out every other Friday, no matter what, because it’s on an automatic payment plan.

However, I might have a client who pays late, so the money may not actually arrive until the following Monday or Tuesday. The mortgage payment comes out, and I have the income necessary to cover it, but because of the timing of a client’s payment, there isn’t quite enough money in the account. Money is taken from my connected personal line of credit, and I am charged a $5 fee, plus interest until the small loan is repaid.

If I didn’t have that line of credit connected to my checking account, though, the consequences would be different. The mortgage payment would still go through, but the fee would be $39 for an overdraft.

In either case, though, it’s clear that my problem isn’t income, in the sense that I don’t have the income to cover what I spend. My problem has more to do with timing — it’s a cash flow issue.

Notice the Way Money Moves through Your Personal Economy

In order to avoid cash flow problems, it’s important to pay attention to how money is moving through your household’s financial system. If you have a regular paycheck, and you can predict most of your expenses, this is fairly simple. You can have retirement account contributions made from your paycheck so you don’t have to worry about it. You can schedule your mortgage payment to be taken out of your account two or three days after your regular direct deposits.

With an irregular income, though, things become a little trickier. You might not know exactly when you will receive your expected income. I’m still waiting for payment on an invoice sent five weeks ago. I can send reminders, but I can’t force my client to pay me right this instant.

In cases where you have a less predictable cash flow, it makes sense to take precautions. Some of my automatically paid bills, like the satellite TV bill and the produce delivery, are charged to the credit card each month. That way, I can just pay what owe when the credit card statement comes, and I don’t have to worry about those bills eating into my checking account at an inconvenient time.

My other stopgap is the personal line of credit. It’s not something that is needed very often, since I like to have a bit of a cushion with my checking account. However, it has come in handy in some instances. Its cost is much lower than the standard overdraft protection, which can add up fast, and cost quite a bit.

The reason for having these measures is to prevent me from having to constantly fiddle with some of my automatic transfers to my emergency fund, retirement account, and quarterly estimated tax fund. It also ensures that my money continues to move smoothly, and I am still able to go to the store and buy groceries, even if there is a bit of hiccup with timing.

Most of the time, my planning works out well, and there are no problems; it’s usually very smooth. But sometimes, circumstances result in an unexpected situation. At those times, it’s good to have a backup plan based on your understanding of your household’s cash flow.


Do You Have an Income Problem? Or a Cash Flow Problem? — 20 Comments

  1. Really enjoyed your writing, Miranda! My wife and I are self-employed and I am an adjunct at 2 community colleges, so we have the ebb and flow thing too. Summer can be a complete cluster eff despite the preventative measures we take.

    • Thank you for reading! So true. It seems like summer is such a mess. You just have to put your head down, and look for ways to ease the flow of money.

  2. I personally think more people have a cash flow problem vs an income people. If you budget plan and execute you can truly get by with what you earn. Like you I have an unstable cash flow so I put certain things on credit so I can pay them off at the end hopefully by the time my payments come in. When unexpected things come up I have them come from my back-up account.

    • I agree that timing is under-rated. Like you, I make use of credit cards (rewards!) to help ease the cash flow. Although I do feel bad that sometimes — not very often — I have to carry a balance for a couple of months.

  3. $39 for an overdraft is steep! I negotiated with the bank and they now charge 8% pa with interest calculated daily and no minimum. So when I forget to check accounts and a payment goes through with no funds for a few days, it ends up costing $0.25 at most.

    • Welcome to the United States banking system. $39 isn’t out of the ordinary, unfortunately. I like the way you can negotiate. I can waive one fee a year, but that’s it. The line of credit brings down the costs in those “just in case” situations.

  4. Irregular income can be a real issue – you definitely have to plan for the long term when you’re in that kind of situation and have a cash reserve!

    • I can imagine it’s all challenging on a teacher’s salary! But most of us appreciate your hard work. I know I appreciate and admire my son’s teachers.

  5. No matter how adept we re at predicting our expenses, we sometimes find ourselves worrying about our finances, and money matters are really very difficult to handle if your income comes from the payment of other people to goods or services you’ve rendered. It’s always good to have an emergency fund stashed away for situation like this, it’s probably not a good idea to borrow from your emergency fund, but I think it is a lot better than borrowing from other people or being anxious all of the time.

  6. Great post Miranda. My wife’s income fluctuates based on the shifts she can pick up and we had to tackle the cash flow issue too. We decided to make sacrifices to live off of my steady income and use her fluctuating income for the non-essentials. Additionally since I am paid biweekly, the two times a year when I receive three checks a month – we figured out a way to save the entire check through cash flow timing. Saving that entire check is only possible for us because of cash flow timing.

  7. Have you ever thought about un-automating your payments? I was running into this problem alot with my mortgage over the past year due to some poor financial planning on my part. I would used the 15 day grace period my mortgage had in payments to buy myself time to get the cash from my next paycheck to cover the amount owed. Can also do that with other bills. This may be cheaper then even the $5 fee for the personal line of credit.

    • Since this is a VERY rare issue for us, I am reluctant to unautomate my payments. This is because it would mean a lot more time spent managing payments. My time is worth far more than the $5 to $15 I spend each year for one to three timing issues I encounter.

  8. Thankfully I don’t think I really have either (but who wouldn’t like more income?). Right now I’m focusing on doing side gigs to bring up my income a little bit.

  9. Our emergency fund is currently in our checking account, but even with it in something with a higher yield, we’d always keep a float of $1000 or so. 🙂

    I have honestly never balanced a checkbook in my life!

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