Now it’s useful to compare the estimate with your actual figures, averaged over 12 months – why is it higher or lower than you gauged? Most likely you’ve got your pricing wrong, or your marketing campaign isn’t producing the results you need? Or maybe your costs are just higher than you’ve previously taken account of.

Very likely your actual revenue will fluctuate massively over a year. So it’s a good idea to “make hay whilst the sun shines” and make more than your target in a time of plenty. Then you can put it in reserve, make some interest on it, and use it to “income smooth” less productive periods by bringing it back to your main bank account.

That’s common sense and all well and good, but there are 2 other crucial figures that come off your revenue target: (1) your tax, and (2) your pricing. So fluctuations in your revenue can skew the amount you need to set aside and the calculations you make on your prices. Even if you do those things every month or quarter then it’s best to see things on an annual basis to get the full picture.

For example, you could make £5,000 in one month (so set aside £1,000 for income tax) then only £7,000 for the rest of the year (setting aside £1,400). In total you’ve only made £12,000, under your personal tax allowance, and so have £0 tax to pay, not £2,400!

The most important part of the exercise is to then project your average target forward over 1 year, 3 years, 10 years! Use the SMART goal (Specific/Measurable/Achievable/Relevant/Time-bound) framework, in particular, is it Achievable? What might hold you back from bringing in all those dollars? (Hint. It’s probably the amount of hours you can work and charge for…)

#ownallyourfinances

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