How to budget when your income isn’t consistent #5

Watch the video or read the post below

Congratulations on making it this far! We are on the last leg now.

If you landed on this page and don’t know much about this blog series “Mastering Money for Writers”, I recommend starting from the Introduction or at least Part 1 before continuing.

Because by now you should know the following:

  1. Your Lowest Monthly Income
  2. Your Total Critical Monthly Expenses
  3. Your Total Discretionary Monthly Expenses
  4. The meaning of Cashflow & why Pay Yourself a Salary

Let’s discuss what to do with some of the money that is (hopefully) left over.

Chapter 5: Start filling your Water Bucket

Like I’ve mentioned in past posts, the language used in money can impact how you feel and thus the actions you take. This category of money is also described by many names, the most common being an “Emergency Fund”. In one of my most favourite personal finance books ever, “The Barefoot Investor”, Scott Pape calls this pool of money the “Mojo Account”.

I’ve chosen the name “Water Bucket” because, the purpose of this fund is to put out the unexpected fires that are unfortunately just part of life. So this is money to cover only emergencies like (God forbid) a car accident, household and car repairs, medical expenses and other emergency bills.

Your aim is to save 3-6 months worth of your Critical Expenses.

Since you’ve already worked out Your Total Critical Monthly Expenses in Chapter 2, multiply that figure by 3 to give you your ideal Water Bucket.

However, while the concept of this category of money may seem simple, I know firsthand that this will probably be the most daunting step of them all. You might be thinking to yourself, “Three months worth of expenses…let alone SIX months…is A LOT! I haven’t been able to save even $100, let alone thousands!”

I completely understand that when you’ve been living payday to payday, this step may seem an impossibility. However, it doesn’t take away from how incredibly important having this safety net is. This fund is the key to changing what could have been a complete and utter disaster, into just an inconvenience.

At the same time, I’m a big believer in baby steps. So if you are coming from zero savings, if you have never before successfully saved money, let’s do this instead:

Aim to save $1000 towards your ideal Water Bucket.

Let’s say even this feels too hard, then:

Aim to save at least $500 towards your ideal Water Bucket.

Let’s now talk about the “How”. There are a few possible approaches, which I’ll list below. Pick the one that feels easiest to you, or try them all and see which one sticks.

  1. Now that you know your “cashflow”, every month, save at least half of this leftover money into a seperate bank account (which, by the way, you can actually nickname whatever you like). This is by far the fastest way to fill your Water Bucket.
  2. Set up a direct debit into an account in another bank that’s not local to you and that’s not linked with a card (so it’s harder to access, because trust me, you will be tempted to use that money for non-emergencies. Your mind will justify why you need need that money, even though you know it’s more a want than a need). Make the amount small but be consistent with it. For example, $20 every pay—that’s just one movie ticket, but it adds up over time. So let’s say you get paid every fortnight, in a year, $20 x 26 is $520! But don’t even check how much you’ve got so far; pretend this account doesn’t exist. The only time you’re allowed to remember it is to put out a real fire—the time you will thank me.
  3. If you use cash (not sure if many people still do since COVID19 but), get an empty 600ml bottle and fill it with $2 coins slowly over time. According to Kelly from Be a Fun Mum, she managed to fit $880 worth of $2 coins!
  4. If you primarily use a debit card for day-to-day purchases, consider an automated savings app like Raiz that rounds up every transaction you make and invests the “change” for you into a portfolio of your choice. For example, you buy a coffee for $4.20; the app rounds that to say $5.00 (you can set the rounding terms in settings) and the $0.80 difference is automatically transferred into your investment account with Raiz. The only thing I don’t like about this strategy is, this is technically “investing”, not “saving”. Investing involves risk and your money will go up and down. So the problem is, let’s say a crisis happens and you need that money, if it’s in a time when the share market is down (like during the crisis of COVID19), you could be pulling out less money than what you put in! However, if all else fails and this is the only set-and-forget system that can help you “save” in some way, it’s better than nothing at all.

And that’s it!

I don’t know about you but I’m feeling super excited, as we are fast approaching the end of this first topic! I sincerely hope it’s been valuable and I thank those of you who have shared your positive feedback, which is a huge motivation to me. Until next week, I pray your life is full of ease and increasing abundance. Ameen

Raihanaty A Jalil

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Author: Raihanaty A. Jalil

Raihanaty A Jalil writes poetry and fiction and has been on a panel during Perth Festival Writers Week 2019. She has performed a reading of her work at the Wheeler Centre Melbourne during the Digital Writers’ Festival 2019. She currently sits on the board for Centre for Stories.