Jan 12, 2013 - Finances    4 Comments

Budgeting For Variable Income

Before I get into the fun post about my afternoon in New Orleans, I need to address a comment made by Croft in reply to my update about the truck.

He wrote:

I will get the first comment in. $300 ($600 if you add everything) is a lot for the repair. BUT it is only 2 – 3 month’s payments on a new vehicle. And payments on a new vehicle do not stop, they are month after month. Just sayin’.

That’s the point of view of someone who is living on a comfortable fixed income.

I have variable income and very little financial security in my day to day affairs (my little nest egg for retirement obviously does not figure into my daily budget). I never know how much is going to come in in the next month, so whatever came in this month has to go far.

Sure, my accounts receivable look flush on paper right now, but I’ve learned the hard way that clients don’t always pay up when they say they will. The only way I can make it is to budget with the money I have right now, which includes squirreling away a good portion of that in case the next cheque doesn’t come.

I have countless rainy day accounts that are all guesses for me based on how much I’ve spent in those categories on average in the past years. Some of them are flexible, like groceries and entertainment, meaning that I can move money out of them to fund emergencies. The non-flexible categories are things that I can’t skimp on, like vehicle repair and maintenance and income tax.

A car payment was much easier for me. I knew exactly how much I needed each month for that category in my budget and I was on a maintenance schedule. I’ve introduced an unknown element into my budget and until I figure out how much that truck is going to cost me on average in a year, something like this is going to be a big deal even if the amount might seem piddly to some.

I chose to live this way. I gave up a ridiculously comfortable life where I would drop $600 on a shopping spree without even thinking about it in the pursuit of something more real and enduring. So I accept responsibility for my choices and part of that responsibility is being honest about what it’s like to live this life without a steady income or pension backing it.

It’s taken me a long time to figure out how to finance my new life and I’ve finally got a system that’s working. The proof is that I am where I am tonight. I would never have come so deep into the US if I didn’t feel I could handle the financial end of the trip. So I am going to get through this, but unless I want to get myself into debt, I have to trim the budget in other areas. And I’d rather trim the budget in other areas than send more interest to the Visa company.

This budget might sound crazy strict, but it is so freeing to make decisions based on the money I have for certain categories of expenses rather than based on what my bank balance is. It means that when the end of January comes and I get that $150 bill for the web space renewal, I don’t have to worry about it since I put $12.50 a month aside for the past year to fund it.

Or that when I get an unexpected $600 truck repair, I can pull $300 of the truck maintenance account and be grateful that I only have to pull $150 out of food and entertainment since I got that windfall at the casino, but that I won’t get to spend $150 mindlessly the way I had looked forward to doing with that unexpected bonus.

That said, next month, my truck maintenance fund is at $0. What if something else breaks? So for the next few months, I’ll have to scrimp a little to build that fund back up. It’s like paying back the Visa company, only without interest.

The truth is, it would have been easier to not even mention that the truck had broken down and just carried on with the activities I could afford and I debated doing this. But I think that this incident could be helpful to other younger potential RVers trying to figure out how to finance a variable income life and weather a crisis, even one that seems small.

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  • I hope you do not think I was being cavalier in my comment, that was not my intention. I do understand the difference in our finances and you are doing an excellent job living fairly well on your own means and I admire you for that. I know I could not do it.

    I have always looked at replacing vehicles like this. As long as the average monthly maintenance and repair costs on my existing vehicle are less than half what the payments on a new(er) vehicle would be, I will keep the old vehicle. Obviously, if the old vehicle became unreliable, that would be a deal breaker.

    Consider my ’89 Honda Accord that I inherited from my dad in 1994. My current Quicken file shows that in the past five years that car has cost me $2,471 or about $41.00 per month. This includes everything except gas and insurance. At these costs, I cannot justify getting rid of it. It has never failed me and most of the higher individual costs I had some control over in the way of timing as I could delay buying tires and such for a few days or weeks. With payments, you have no such discretion. The payment is due on a certain date. Period. The money had better be in the bank and many costs associated with a new vehicle (non warranty repairs) come out of your own pocket anyway.

    If the average costs on the Honda were to rise to over a hundred a month, I would have to reconsider keeping the car.

    This is the reasoning I was trying to extrapolate into your situation. Yes the truck cost you $600 this month but it will not continue to cost this much. Like you say, you have to establish an average cost before you can make an intelligent decision over what is best to do in your situation.

    I used to do what you do, “put aside” money into various budgets every month. These included vacation fund, car repairs, house repairs, food, etc. I now do it a little differently. I too have a rainy day fund in a savings account. My Union pension, CPP and OAP go into my chequing account. If I run out of money in chequing before the month is over, I borrow from my savings. If I run out of month before the money in chequing is gone, the balance goes into my savings and I start fresh the next month. One way or the other, I always end the month with a zero balance in my chequing account. I never worry too much if I have a bad month, I do however try to keep expenses down the next month if I can, same as you. As long as my savings account does not start showing a continued downward trend, I do not get excited. I am no longer saving for my old age ;).

    An example of this is the month we drive down to Mexico (November) is always very expensive, as is the month we drive home (April), as much as double my income for those months. The months we are driving around Mexico are a lot cheaper and can be controlled simply by staying in an RV park for $20 per day rather than putting $100 a day into the gas tank. In this way we are quite similar.

    Having said that, I know your circumstanced are different. You are right, I have always had a secure, dependable income but that does not mean that we cannot benefit by thinking about how each other’s methods could be adapted to help ourselves.

  • Croft, our methods really aren’t that different except for the income part of the equation. You know that next month you will be getting $X to put in your chequing account. Next month should be okay for me, not great, but enough to get by. As long as no other big expense comes up, I’ll be fine. Or I could suddenly be featured on a radio show and sell 100 copies of my ebook and be able to coast. I never know. I have to think super conservatively.

    I think your point about the Honda is an excellent and very helpful one. Since the car payment was $350 a month, I’m going to make that a target savings goal for each month.

    Oh, and the couple of times that I was having cash flow issues and was getting money a few days after the payment was due? I’d just call the bank and they would take the payment when I told them to, as long as it was within the same month. No big deal, as long as I gave them sufficient notice to stop the automatic withdrawal.

  • I always appreciate posts about finances.

    Stepping away from a good-paying job to living on the tiniest of pensions + temp/part-time work is like jumping off a cliff. If I retire early to full time RV I will be doing just that. It’s good to know how others handle a financial set back.

    Thanks for being so open about these matters. LG

  • I am SO grateful that you DO share these things on your blog. It shows the bad, good & so-so reality of RVing, which is missing for the most part in other blogs/books. When I paid off my final, monthly payment car in 1998 ( and totaled it 2 weeks later!), I purchased a used car with the insurance check. Every month I tried to put back the same $200 pmt in my account. It really came in handy. Not only for the maintenance but for parts that WILL break and need replacing. Some folks thought I was crazy to ‘keep up pmts’, but I didn’t have to scrimp & gripe when something unforeseable popped up. And I rarely had to ‘go without’ to be able to afford it. And when THAT used car gave up the ghost, the ‘fund’ purchased the next ‘pre-owned’ 🙂
    I too am self employed with varying income. Yes, it is different not being able to count on X$ per wk/mo. But I adjusted & sometimes have had to adjust daily/weekly for a bit. I try to think of these times as a further adventure in life, not as something drastically permanent (which they aren’t for the most part) As far as pensions, I’m of the mind that I won’t have one/there won’t be one, so what I do NOW is taking care of the NOW- with a bit of self-funding for the FUTURE. When we take full responsibility for our life now & the future, we live conscientiously & deliberately. Which ultimately allows us the freedom that so many others fail to achieve or even grasp. This turn of events gave you the opportunity to revise your tourist priorities, which in turn gave you Eugene and an enjoyable day.
    Or as Quark (from DeepSpaceNine would say): “There are no accidents, only opportunities!”
    So I’d say that life is full of accidental opportunities. Live Adjust Enjoy!

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