How to achieve financial stability amidst fluctuating income?

The economic volatility has created financial uncertainty for Jai and Manisha Sharma. Jai has been incurring losses in his 30-year-old kitchenware trading business, while Manisha’s income as a financial adviser is irregular. With high, fixed, monthly expenses exceeding their combined income, their finances are under strain. How can the couple address this imbalance?

Jai and Manisha Sharma have an inconsistent combined income. While some months bring in substantial earnings, others fall significantly short of the required amount. Yet, their fixed monthly expenses remain constant. The lean periods pose a challenge. The key is to ensure that the good months cover the slow ones. There are two ways to approach this.

The first approach is to evaluate the business for opportunities to build a steady revenue stream. Securing a base of core customers, introducing a recurring fee, or bunching orders can help reduce income volatility. Even setting up an overdraft facility to smoothen inflows and borrowings can make a difference. Ultimately, they need to rethink their business strategy to ensure a stable income.


The second approach is to build income-generating assets, such as interest-paying bonds, dividend-yielding mutual funds, rental property, or bank deposits, to create a steady cash flow. During high-income months, they should set aside funds from the business to build this portfolio. While it can be difficult for business owners to divert capital from operations, creating an investment corpus can help cushion the family from income volatility and efficiently diversify their assets beyond the business.

The Sharmas must also ensure that they work to secure a minimum level of stable income to run the household even if it means that one of them returns to a salaried job. The personal finances of the household need to be on a firm ground so that at least one of them is able to take risks in business.

Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.