Planning to Live on Irregular Pay

Not much time to write today: I’ve worked from dawn to well after dark the past three days on a big rush project. It’s an index of some heavy-duty scholarly work — a mind-numbing job! — and it came along just as a nasty little cold hit. But pay will more than meet The Copyeditor’s Desk‘s minimum monthly revenue goal, and that’s on top of several other projects that came in this month. And it doesn’t count the jewelry sales, which I consider a bit of a fluke.

If I finish this thing today, which I probably will, I’ll earn almost as much in four days as the community college pays for two weeks of work. Think of that… :roll:

When you’re working on a contract basis, it’s important to bear in mind that some months no work will come in. And some months, you’ll have more work than you can handle. That means you have a fairly large kitty from which you can disburse a regular “paycheck” to support your monthly budget.  What made it possible for me to quit my day job, as it were, is the amount that has accumulated in the S-corporation’s bank account, plus the remains of my “survival fund” of emergency savings that I had when I was laid off in 2009.

I’ve spent most of the latter — a fair amount of it went to shoring up the house’s defenses after the late, great garage invasion — but after replenishing with the last Heavenly Gardens paycheck, about $7,000 remains. A year’s worth of living expenses resides in the S-corp. Those two bank accounts taken together (the S-corp’s and Survival Savings) will serve as the kitty to bankroll my future of glorious planned unemployment.

Or rather, “self-employment.”

The plan is to draw down about 3 percent from retirement savings, in quarterly chunks, and at the same time disburse quarterly payments from the corporation. These funds will go into the Survival Savings account at the credit union, from which each month I’ll transfer enough to my checking account to cover regular budgeted expenses and the several self-escrows required to pay insurance, car registration, and property tax.

To avoid impoverishing the S-corporation, The Copyeditor’s Desk will have to earn a set amount per month to pay its bills and support me. But because I live so penuriously, that amount is surprisingly little. Just a couple of halfway decent assignments a month will do the trick.

This month more than a couple have rolled in the door. The amount billed in December is  more than twice the minimum revenue the corporation will need for me to pull this off.

That means next month I don’t have to earn anything. As a practical matter, the S-corp can float along for a month on what it’s earned this month, pay its bills and me, and still not eat into the fund that was in the bank when I quit the teaching job.

Living on irregular pay means finding a way to gather all sources of income into a single kitty from which you can disburse only enough to cover your month-to-month bills. At the outset, you do need to hold on to the day job until you can accumulate a fairly substantial base fund to start with — at least a year’s worth of living expenses, preferably two years’ worth, plus a short-term emergency fund for unexpected expenses. But once you have that, the trick is to regard the “kitty” as something that accumulates its funding on cycles that are longer than your budget cycle.

So, if you budget from month to month, as most of us do, the money from which you fund that budget should be accumulating funds on a quarterly or annual basis. This smooths out the demand for immediate income: if more than enough pay arrives in January, it will reduce the amount that absolutely has to come in February. Assuming your enterprise earns more in March or April, at any given time there should be enough in the larger account to fund monthly expenses.

In theory, you could have one big fund from which you draw for all day-to-day expenses and into which all dribs and drabs of income irregularly flow. Personally, I want to see a bottom line that tells me how much is left to spend in any given month, and I don’t think a large fund would easily allow me to do that. It’s a function of my weak math skills, no doubt. That’s why I have a checking account for expenses and a money market account for the kitty that collects the several forms of irregular pay that come my way. Doing that actually converts the irregular pay to something like “regular” pay: you pay yourself a monthly paycheck out of the collector account.

To make your escape from the rat race, then, you need…

One or two years’ worth of savings
One or more sources of self-employment or retirement income
An account in which to accumulate that income; we’ll call that the “kitty”
A checking account to hold disbursals for monthly bills

Irregular income → Kitty account → Monthly budget account

From month to month, the kitty account, which is substantially larger than the monthly budget account, will grow and shrink according to how much comes in at any given time. But it’s not on a monthly cycle: it’s actually on a quarterly or yearly cycle. As long as enough comes in over a quarter or a year to cover monthly disbursals, you’re cool.

Gotta get going: more things to do today than there are hours to do them!

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budget glamorous December 19, 2012 at 12:52 pm

Can you tell a difference yet in how you feel?

Funny about Money December 19, 2012 at 12:53 pm

Yup. Actually, that’ll be the topic of another post, if I ever can find time to write again!

Sandra J December 19, 2012 at 1:24 pm

Will you still be teaching the on-line magazine course? I think you answered this already, but can’t remember for sure, and I wasn’t taking notes. I also didn’t read the syllabus like you assigned us . . .

Funny about Money December 19, 2012 at 1:37 pm

Yes. It starts in March, but you can sign up at any time now.

Sandra J December 19, 2012 at 2:06 pm

:-) Nope not a student, just nosey. Hope it makes!

funny December 19, 2012 at 3:08 pm

Darn!

Well, more students sign up each semester. This fall we had 20, but we ended with 5. In the spring, the plan is to move back from WP to Canvas, which soon will be the college’s official CMS. Students will have a learning curve and so will I (there are plenty of “I hate canvas” posts on Google), but I’m thinking I’ll keep the WordPress site up just to hold the syllabus, lecturoids, and calendar of due dates, and then use Canvas for the heavy-duty stuff. It’s possible that using Canvas will up the retention rate — I hope so. But I’ll also try a few strategies to keep them engaged, which I hope will help.

Evan December 20, 2012 at 10:10 am

Why take quarterly payouts? I know you have advisors you trust (first step) why not instead of reinvesting dividends just get the monthly/quarterly payouts into your cash account and then invade that every so often? May prevent eating into the principal for a bit

funny December 20, 2012 at 10:14 am

@ Evan: It just seems less daunting to me to have a specific chunk of money from which to dole out monthly sums…and to have it all in one place, rather than having to draw down X amount from Fidelity and Y amount from the S corporation and Z amount from Social Security.

At the outset, the drawdowns from Fidelity will be from a cash reserve, and so they will not incur a tax charge nor will they pull money out of investments.

Mrs PoP @ Planting Our Pennies December 20, 2012 at 6:59 pm

Just curious – what are the fees on your disbursements? I was shocked at the fees my MIL got hit with when she pulled out a somewhat substantial sum.

funny December 20, 2012 at 7:57 pm

Fees on disbursements? You mean bank fees? I don’t know of any….and I’ve paid some fairly large bills from the corporate checking account. Do you mean taxes? Any disbursements that are taken as salary of course will have state and federal taxes withheld, plus the employer’s and the employee’s FICA.

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