In Kris Rusch's series on why writers disappear, she mentions that many writers can't handle how differently money flows when you are your own boss than when you are an employee and you get a nice, predictable check every week or every two weeks.
She notes:
No business—not one—earns the same amount of money month in and month out. Employees do, because the employer guarantees the paycheck. But if the employer can no longer meet payroll, the employees get laid off.
The employees never see the business’s uneven income (unless that employee works in accounting), and so rarely understand how normal this is. Most people, in fact, have no idea how precarious their regular jobs really are. (Although, after this recession, more people know now than before.)
When people who’ve had steady work move to freelancing, they expect the freelance income to behave the way that their paychecks did. They expect regular and on-time.
Because indie writers get regular checks from their distributors, this problem gets compounded. The checks feel like a salary, even though they aren’t.
And so when the money decreases, or dries up, it feels personal. It hurts. What has the writer done wrong?
Nothing, except fail to plan for normal business ups and downs.
"Normal business up and downs" are why when credit dries up, it damages the entire economy--many businesses have a line of credit and borrow money to meet their payroll during the slow season in the normal course of events. It's not something they do only when business is bad; it's something they do every single year--because they don't make money in the summer, or they don't make money until the summer, or whatever. That's how their industry is, so they have developed methods to cope with it.
Most individuals haven't developed these coping skills, though. Most people are trained to expect a regular paycheck, and they have developed spending habits that align with that regular income. The way life usually operates for people with regular jobs is:
Regular money in => regular money out
Monthly rent or mortgage payments. Monthly car payments. Monthly bills. Every month, like clockwork, your expenses are X many dollars, and that number does not vary by much.
It makes total sense, because your income is Y many dollars a month, and that number doesn't vary much, either. Maybe you even get a little silly about it, leasing fancy cars and always making payments on everything because those things don't make the X number bigger than the Y number.
But what if Y is completely unpredictable? What if some months it's a HUGE number, and other months it's teeny-tiny? Well, then, you have to take a different approach.
(Actually, you don't have to--you can do what you want. I'm not your financial advisor, and I know SFA about your specific financial situation. In other words, if you go broke following my advice, that's on you--consider this my disclaimer.)
The strategy I used when I was a freelancer could be described as:
Erratic money in => strategic money out
What do I mean by strategic money? Well, I knew that my monthly income was going to go waaaaaay up and waaaaaaay down. So the goal was to get my essential expenses--the expenses that I absolutely had to pay every single month like clockwork or there would be some horrible disaster--down as low as I could.
Of course we're all human, and the temptation with a windfall (especially after a lean period) is to spend it on fun stuff. What I did was to allow myself one indulgence--something I really, really had been craving and feeling sorry for myself over. That usually took the edge off (especially if I wound up never using it, or using it and realizing that it kind of sucked). It couldn't be outrageously expensive, or something that would lead to greater monthly expenses (so, nothing I had to go into debt for). I also tried to buy it used if I could--pawn shops are excellent places to get jewelry, by the way, and there's a whole cautionary tale to be had by seeing really fancy crap that had to be hocked for 10% of what people paid for it.
The rest was spent strategically. Spending strategically meant that I took the windfall from the months with a big income and invested it into things that would bring down my essential monthly expenses. A good example of this is paying off a car--that's something that's usually pretty doable, and getting rid of that car payment is a big help for most people. Paying off debt in general also falls into this category--not only do you wipe out the payments, but then you have that line of credit available later if times get tough.
Paying stuff off isn't the only thing, though--you want to start living like some combination of a left-wing econut and a right-wing survivalist. Forget the arguments against buying in bulk--those apply to people with regular incomes. When you're flush, stock up on nonperishable essentials. Also, spend the extra money on energy-efficient appliances and reusable household goods--they will bring down your monthly expenses.
I realize that normal people with regular incomes sit around with their calculators and try to figure out when exactly these things will pay for themselves. That math is far less important to someone with an unpredictable income. If your income is erratic, getting your essential expenses down has value in and of itself, because it means that when you have very little income coming in, you'll still be able to pay your bills and live in a decent sort of way.
The sticky wicket here is always housing. In the vast majority of cases, the windfall isn't going to be anywhere large enough to pay for a place outright, and the way mortgages are usually set up, you have to make a minimum monthly payment even if you've just paid off a large chunk of the thing. If you rent, you could pay a year's worth of rent to your landlord, but I wouldn't recommend it because in my experience most landlords will happily pocket 12 months' of rent, and then come back to you in three month's time wondering why you stopped paying your rent. (No, I've never had an intelligent landlord--and I know people who tried paying two or three months' rent at a time, and their landlords were too dumb or too dishonest to cope with it.) So I would just go with having a special account dedicated to housing. Try not to raid it because you simply must go to Tahiti this year.
Yet another thing to do is to take your erratic money and turn it into predictable money. If you know that once a year you need a bunch of money to [pay taxes, buy Christmas presents, whatever] then things like certificates of deposits can be very helpful. I know the rates are very low nowadays, but you can use a CD to put money you'll need in the future someplace where you can't get at it (at least not easily) until you have to have it.
Now, if you have a really serious windfall, you can actually turn that into regular monthly or quarterly income--that's called "income investing" or "investing for income." I'm not going to get into the specifics, because different strategies work for different people. But when you see some entertainer make $20 million one year and file for bankruptcy the next, a failure to invest for income is usually the culprit.