For most people in the developed world, daily life is oriented toward people who have a job that provides a steady flow of paychecks. You want a credit card? A mortgage? Car loan? Investment account? First, tell us how much money you get every month… Your life is expected to be funded by smooth money flow.
Part of the rebalancing that is happening around us in many developed countries is a shift away from a steady pace of work that produces a steady flow of money. Some people (like me) have been self-employed with an erratic income pattern for a long time. But we are being joined by a flood of people swept up in the Gig Economy, mostly experiencing income fluctuations in a very different way.
Either way, the developed world is not set up for ordinary people who live with lumpy money. Everything financial is harder for people who don’t have a job with a nice stable paycheck. The banks, mortgage lenders, loan companies, tax authorities demanding estimated tax deposits, and sometimes even utility companies hate unpredictable income patterns. When those of us with lumpy money are able to get credit, we don’t get lovely deals. We have to put in larger deposits and pay higher interest rates.
That’s when we can get credit at all.
This gives people with steady paychecks better access to financial leverage, which they take for granted.
As I mentioned, we aren’t all alike. We live in different strata depending upon the type of lumpy money we make and the size of the lumps we tend to get when money does come in.
Lower Strata
If you are in the Gig Economy, you’re probably in the lower strata of people who get lumpy money. You’re delivering takeaway food orders, driving for Lyft or Uber, showing real estate on a piece-rate basis, or some other type of gig. You aren’t an employee, so you only get paid for the gigs you do. Downtime is your problem, regardless of whether it is due to a dip in orders, going to the dentist, being too sick to work or taking a vacation. In this strata, the restaurant, ride-hailing company, real estate agency, etc offloads its least profitable work onto you. They’re enjoying better profits by doing so. You get peanuts.
It's painfully hard to live on the small supply of lumpy money in the lower strata.
Middle Strata
Saying that plumbers, carpenters, electricians, remodelers, owners of small independent businesses and so on occupy the middle strata is a sweeping generalization. Some people start out in the middle strata but move up. I’ll say more about them in a moment.
Most people in such lines of work stay in the middle strata. Much of the time they have enough money coming in to fare reasonably well. It’s lumpy. Maybe revenue falls off in the holiday season because customers are directing money toward the holidays, or maybe revenue goes up in the holiday season because they sell holiday-oriented goods or services. It’s a lumpiness than can be ridden out and lived with well enough.
Upper Strata
The most successful from the middle strata build up their businesses into larger enterprises. When they do that, it moves them to higher strata and can even make them wealthy. If you are wealthy enough, you aren’t seen as having lumpy money any more. You’re seen in the light of having pots of money. People with lumpy money have great access to financial leverage too if they have so much that they only need the leverage when they are pursuing a special deal such as acquiring a business.
Roller Coasters
Of course, real life isn’t tidy. I’ve lived with lumpy money most of the time since leaving the space program. I notice other people who live with it too, and the vast majority seem to occupy one of the strata I outline here.
I said the vast majority. I didn’t say everyone fits the pattern. Heck, I don’t fit the pattern.
You could say this minority has a feast or famine pattern that can swing us up and down and up again among the strata. I would rather call it a roller coaster. I happen to like roller coasters. When I’m riding one, neither the ups nor the downs are permanent but the ride is an adventure. My pattern is a roller coaster.
I’m thinking about this because someone I’m working with is in the midst of going from a lifetime of steady paychecks to lumpy money.
It isn’t an easy transition. I couldn’t do it until I got sick. I had been considering it, studying it, but the uncertainties of working on a contract or consultancy basis scared me. Feeling like I had just lost a lot of what I was protecting by staying in a regular job made taking the leap less scary. Even then, I made the leap from a job to a solid contract through an agency. It lasted about five years and put me in the middle strata, a nice place to be. During those years I studied what it would take to go independent, forming my own company and not needing to always go through agencies. When that first contract ended, I took the leap onto the roller coaster.
The person I’m working with has some reliable cash flow as a cushion. It isn’t enough to live the way he wants. He hasn’t learned yet about riding out the lean periods between lumps of money, a skill that everyone who lives on lumpy money has to learn. He still thinks in terms of getting paid for the time he puts into work. He doesn’t yet think in terms of larger lumps of money for other reasons.
Getting Off the Roller Coaster
He is ideally situated for the holy grail of roller coaster riders. With a few years of patience, cleverness, a bit of luck and scrimping on small lumps of money, he could land a lump big enough to live on comfortably for the rest of his life and step off the roller coaster.
Not many are so well positioned. Next time I’ll anonymize his story to tell you more about how a person like him can turn one special cycle on the roller coaster into a launchpad to the realm of the well-off.