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… 🙄

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!