Need help from anyone who lives on a fixed income

[nanette1985]

I never have had a fixed, predictable income - lots of work but temp, gigs, p/t, contracts, starting up businesses (no income) and selling them (big payoff), and so on, the money would be there, but eventually. That's a certain type of financial planning - probably not so common, but it's what I know.

This is the first time I've really dealt with a chunk of $ regularly coming in every month. It's different.

Question - how do you do it? Fixed, regular expenses are one thing, but what do you do about irregular and unexpected expenses? What do I watch out for? How do people normally budget? What surprises will I run into?

Thanks.

 

[linuxboy]

it's not so much different from a salary and normal financial planning when you have one. Meaning:

- Have/create an emergency fund for at least 6 months of expenses or emergency needs
- Figure out budget
- After expenses, determine financial savings needs for short term (splurging) intermediate-term (moderate cost purchases, trips) and long-term (retirement, etc) needs, and save for those.

If you're in a retirement or quasi-retirement period, then it's about making sure the fixed income supports you for an anticipated life span and drawing what you need from an asset base.

 

[Exterous]

Wait - you mean someone who reguarly gets a paycheck at the same time for the same amount? Hmmm - I would have thought that would be normal enough to not need this question. *shrug* No matter!

What did you do about unexpected expenses before?

Unexpected expenses are what your savings account is for. I think the general rule of thumb - if you own a house - is a years worth of living (with no source of income) in your savings. I think we have 9 months currently. A lot of people have it set up where $X per paycheck go into savings in order to grow it.

Most people also have $Y per month going into a retirement account. There are a lot of retirement calculators and retirement resources to figure out what you might want your end goal to be

We also round up with our checking account (Spend $1.51 on something, mark it down as $2) so there is usually a couple hundred extra in there for the smaller unexpected expenses

I know it sounds wierd but my wife and I both have a weekly allowance to do with what we please. We figured out what would be a reasonable amount of money to get per week for going out to eat for lunch, friends etc (not gas). We settled on $40 a week each. (It also makes it a bit more special when we buy something for eachother and it comes out of our allowance instead of the general fund)

I could care less what she buys with hers - lunch, shoes, saves up for a nice new expensive purse - it's 'her' money. Bigger purcahses that need to be made from the joint account are generally mutual decisions. We've found it keeps down our expenses more than just putting it on the debit card and - as a more steady/regular deduction - has made budgeting easier

 

[nanette1985]

Wait - you mean someone who reguarly gets a paycheck at the same time for the same amount? Hmmm - I would have thought that would be normal enough to not need this question. *shrug* No matter!

What did you do about unexpected expenses before?

Yes, it's normal - but I've never done it before. That's why I asked. Thank you for the reply - it is very helpful. This is stuff I need to know.

Formerly, if I got a big check, most of it went into savings, same end result as doing it a little bit at a time, slightly different method. And if I needed extra money, I just made a few calls and got some extra work. Can't do that these days for medical reasons.

 

[rudder]

You put 3 -6 months of living expenses in an account that only is touched in emergencies. Then you budget based on the low end of earnings. save the overages and use that for the niceties in life.

Edit: or what linuxboy said.

 

[SP33Demon]

Autopay on your bills helps alot.

 

[Exterous]

Yes, it's normal - but I've never done it before. That's why I asked. Thank you for the reply - it is very helpful. This is stuff I need to know.

No problem - I was just suprised but it makes sense. I had a hard time adjusting to a fixed 40hr a week schedule the first time I did it because for I had only worked retail for years

Formerly, if I got a big check, most of it went into savings, same end result as doing it a little bit at a time, slightly different method. And if I needed extra money, I just made a few calls and got some extra work. Can't do that these days for medical reasons.

I think the weekly budgeting would help not only in making sure your expeditures are in line with your income but also in getting used to a consistant paycheck/budgeting process

 

[RockinZ28]

I keep it fairly simple. All paychecks direct deposit into my checking account. Just need to make sure by the final paycheck each month my balance will cover rent/utilities. Buy everything else on credit so I have 30+ days to pay it off in full. Remainder I transfer to online savings and don't touch it.

 

[rcpratt]

I would think it would be easy enough to adapt to this situation from your relatively less stable previous position. Odd.

edit: Stable makes a bit more sense than table.

 

[linuxboy]

I would think it would be easy enough to adapt to this situation from your relatively less table previous position.

It's tough, because you're going from a situation where the there is the possibility of doing ad-hoc projects to earn more money in emergency situations, and the possibility of large one-time payments, to an entirely new paradigm where there's only fixed income. OP, I would think of the similarities. before, you drew regular payments from an asset pool. And you had reserves for emergencies.

You can do the exact same thing now. Save some of the fixed income in an emergency savings account, and then open more accounts for additional purchases that you want to make in the future, and save for those. In the short term, you lose the security you previously had of being able to work more projects, and in the long term once you have some money built up, it will be essentially the same as you've had it before, with a bit more need to budget and watch expenses.

 

[dullard]

The most basic of all things is to get to at least $500 reserve cash. Only about half of Americans have that. That will let you handle most unexpected purchases. For a true emergency situation though, you need $2000 in reserve cash. Think about it, a new engine or transmission = ~$2000. Heck a reasonable drivable car = ~$2000 if your current one is toast. A new furnace / AC = ~$2000. A large medical expense that hits your deductable = ~$2000. Get that $2000 in cash (in the bank) and you'll be able to handle any single unexpected situation. If that isn't true, then you need to adjust your insurances so that it is true.

Next, set up a budget. How much do you spend a month? Most bills are generally fairly even from month to month. Mortgage/rent will be the same each month. Most utilities (Internet / phone / garbage) will be basically the same each month. Even electricity / gas tends to even out (AC usage is high when gas usage is low and vise versa). The amount you spend on food and misc items is probably similar from month to month. You can keep your splurges fairly constant too if you try (don't go on a clothes shoping spree the month you take a vacation or the month you buy that new computer/TV). Go back through old bills or check balances and find out how much you spend on average in a month. Keep that typical monthly amount in the bank in addition to the $2000 emergency fund.

Then set up "outs". Have a credit card you don't use, just in case. Have a line of credit on your home, just in case. Have a friend/relative that is willing to loan money, just in case.

Do that, and you'll be set.

 

[Exterous]

at least $500 reserve cash. Only about half of Americans have that.

😱

 

[lxskllr]

You strike me as living fairly lean as-is. Bank what money you can, and very carefully consider non-essential purchases. That's really all there is to it. You either have money, or you don't.

 

[nonameo]

You strike me as living fairly lean as-is. Bank what money you can, and very carefully consider non-essential purchases. That's really all there is to it. You either have money, or you don't.

Yeah, I'd say that if you've managed to deal with a fluxuating income, you're already doing better than most anyway. MOST people(yes most) spend ALL their money when they get their paycheck(bad idea) However, you're already used to not doing that!

So, just set aside a little bit every time you get paid and I think you'll see that you're worrying over nothing.

 

[GotIssues]

It's been said before, but I'll repeat what others have said:

Minimum 3 months expenses, 6 months if you are the only earner in the household (more isn't bad, either. When I was laid off, I went about 1.5 years without a job, and frugality and planning ahead made sure I didn't shrivel up and die).

Know what you spend your money on, but since you dealt with infrequent payments, you are probably pretty pro at budgetting your money to last (whether you think you are or not, you probably are). I autopay my bills and double check their amounts each month (cable company likes to "accidentally" charge more from time to time), use my CC for the rest of my purchases - it auto-categorizes my purchases, gives cash back, and it's easy to know where you stand budget wise each month.

Honestly, it won't be that hard of a transition for you, just different.