Are You Making Money Plans Based on Future Income?

When I first started as a freelancer, times were lean for my family. I had just finished grad school, and my husband was still working on his Ph.D. We knew that I didn’t want a “real” job, and that I would stay home and try to earn money with my writing.

Unfortunately, during that first year or two, it was too easy to make decisions based on our future income. Of course we’d be earning more soon. My husband would graduate and get a job. I’d find more (and better) freelance clients. In some cases, the promise of a gig was enough to alter our spending plans.

I remember one fateful day. I’d just agreed to a project that would pay $1,000. We were working out the details of payment and the scope of the work, and everything was in train. Since I’d be getting that $1,000 within a month or two, we decided that we could make a couple of major purchases with the credit card.

Normally, we saved up. Our past experiences with debt, and the fact that, at the time, we were still paying off credit card debt incurred during the undergraduate years, prompted us to show patience with new purchases. But the money was coming, so we went ahead with our purchases.

I probably don’t have to tell you that the whole thing never materialized. After being promised 1/3 of the money up front, I started doing a small amount of work. However, the clients never made even that one payment, and I never sent them the small amount of initial work I did (I shopped it around elsewhere and was eventually paid). That $1,000 never materialized, and we were stuck with more debt  (and the interest payments that come with it), since we couldn’t actually afford the purchases we made.

Make Plans Around Money in Hand

It’s tempting to make current money plans based on your expected future income. As a freelancer, the temptation for me is to say that I’ll get paid in a couple weeks, so I should just go for it. Others are tempted to get a bigger house (and the mortgage that comes with it) certain that they’ll be able to afford the payments in a couple of years, after they’ve received the inevitable raise. Others live lifestyles beyond their means now, convinced that they will soon have better jobs, and that it’s best to “fake it until you make it,” living the rich lifestyle until they are actually rich.

This is dangerous because that future income may not arrive as quickly as you thought, and it might not come at all. Even if it does arrive, it’s too easy to get caught up in what you’re doing now, and you might find that your new, higher income is no match for the debt you racked up while waiting for that income.

Rather than making current money decisions based on what you expect to earn in the future, it’s better to make your plans around the money you have in hand. You’ll be better off in the long run, and build a better financial foundation.