How to cope with wild swings in income using the pressure tank method

When I was a kid, we had a water well at our house. The pump would run long enough to fill up the tank, then shut off. So the water pressure in the house was either all or nothing, kind of like your income.

Being self-employed is almost synonymous with wild swings in income. Compared to a steady job with a steady paycheck, self-employment feels like a roller coaster ride.

And it’s not just self-employed. It’s also all kinds of people with irregular income. Recent data reported at Small Biz Labs showed both people with low incomes and people with high incomes experiencing big swings in their income, month to month. While I don’t have the data on it, I’m sure this is especially true in rural areas where part-time employment and time between jobs can be larger challenges.

Our water pressure problem was solved with a pressure tank. Water flowed in when the pump was on, then a reserve of air pressure pushed the water out steadily as needed. What we need is a pressure tank for your income.

Rather than live through wild swings each month, pump your income into a pressure tank (a separate checking or savings account), and push out a steady amount each month.

Start scrounging up every extra dime and build up your pressure tank account. When you have one of those boom months with higher income, stuff as much as you can away in that account. Then when you hit the bust month with no income or low income, draw out a supplement to even things out.

If you’re really good, you can take your total annual income from last year, divide by 12, and use that as the baseline. Anything over the monthly average goes into the pressure tank. Anything under that, you get to supplement.

I shared this idea with my friend Marc Pitman*, and he told me more than a year later that he found it helpful. I hope you’ll find it helpful, too.

*Marc helps leaders, especially in nonprofits, lead their teams with more effectiveness and less stress. Stop by Concord Leadership Group to get to know him.

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About Becky McCray

Becky started Small Biz Survival in 2006 to share rural business and community building stories and ideas with other small town business people. She and her husband have a small cattle ranch and are lifelong entrepreneurs. Becky is an international speaker on small business and rural topics.