Category Archives: Money Management

6 Tips for Saving While on a Variable Income

How long could you survive on your savings account alone?

When a friend asked me this question, it changed my life.  I had never truly thought about it before. After carefully calculating my budget and analyzing my monthly earnings and spending, I felt so much more in control of my life.

Let’s face it, life is tough and is always throwing us punches.  No matter how stable and secure we may think we are, at any given moment everything can change at the drop of a hat.

Whether it’s an emergency home repair, health issue or job loss, everyone should have some sort of emergency savings to cover these unanticipated costly events.

In sales, most of us are on a highly variable income. We are typically compensated by a base salary plus commission which may be paid out monthly, quarterly or only annually.  Some sales positions are 100% commission.  My monthly income used to vary by as much as 500%. Being on a variable income makes it significantly more challenging to save, however if you follow these tips, you will find yourself getting ahead much faster than you may think.

1. Analyze Your Income and Identify the Month with Your Lowest Earnings (AFTER TAX)

A quick way to figure out this number, is to simply look at your base salary and ignore commissions.  If you make monthly commission, look at the previous year and identify your lowest month and use that as your figure.  If you are on 100% commission, identify your lowest month and if that is zero, look at the frequency of your sales and you may have to develop a quarterly budget.

2. Create a Budget Based on that Number

Identify ALL of your current spending to have an idea of where you are at.  Firstly, begin with your non-variable income (i.e. mortgage/rent, property tax, utilities, etc.) and then your variable income (everything else ranging from food, entertainment, travel, etc.). Don’t forget all the small stuff that adds up like subscriptions, gifts, clothing, gym membership etc.  Be sure to include absolutely everything you can possibly think of because this is where you will be able to make some cut-backs.  Add up all of your variable and non-variable income separately and combined.  Then compare it to your lowest earning month and deduct that figure from your expenses.  What kind of deficit are you running? Where can you cut back? Can you be shopping for basic necessities elsewhere to save money?

3. Pay off High Interest Debt First

With some high interest debt, you may actually end up spending more money paying off interest than your actual debt.  If you can obtain a line of credit from your bank, usually those rates are significantly lower than credit cards and other debtors and you can use those to pay off your higher interest debt in the interim and then work towards paying off the line of credit.

4. Upon Paying off Debt, Automatically Transfer the Same Amount into a Savings Account

This is where I was able to save most of my money.  I had a car loan that was $750 per month. As soon as I paid it off, I set up the exact same amount of money to be automatically transferred to my savings account each month.  After all, I was used to that amount being withdrawn from my bank account each month, so why stop now?

5. Set up a Tiered Savings Plan

I have a variety of savings accounts, all of which have a different purpose and I use them in this precise order

  1. Chequing account– A basic account I use to pay all of my bills
  2. Savings account (low interest)-First line of savings which I use for mostly home repairs or vacation.
  3. High Interest Savings Account-Backup- Only withdraw funds if regular savings account is low.
  4. TFSA (Tax Free Savings Account)-This is similar to an investment account. Only accessed in case of emergency.
  5. Mutual Funds– Investment only accessed if all other accounts are limited which would be an extreme emergency.
  6. Line of Credit-Absolute last resort.

When I was not working, I always kept a base amount of money in my chequing account. I transferred my monthly requirement to that chequing account from my regular savings first, then my high-interest savings account after my regular savings was used up. Fortunately, after 7 months of unemployment, I never had to dip into any of my investments.

6. Invest in RRSPs

Very commonly in sales positions where we may be taxed at the rate of our base salary and not at a higher rate once commissions are included, we may end up not paying enough taxes and owe taxes back. In this case or if you anticipate that you may be earning less money the next year, then you should consider investing in RRSP’s. This will reduce your overall taxable income. The only disadvantage is that once you invest in RRSP’s, this money is no longer liquid.  Therefore if you plan on needing access to this cash, it may be better to simply pay taxes and keep your money in savings.

The Take-Home Message:

The saying “The more money you make, the more you spend” is so true.  My spending over the years got out of control. I used to be an entitled brat who felt that every time I received a paycheque or a bonus that I “deserved” something in return.  I used to spend almost every penny I made and would deny myself nothing.  If I woke up and thought I wanted something, I’d go out and buy it.

It wasn’t until I was facing a situation where I was no longer able to work,  that I actually sat down and ironed out the differences between what I really needed to get by in life, vs. the “things” I thought I needed.

The fact of the matter is that nobody, I don’t care who you are or what you do “deserves” anything.  All of us owe it to ourselves and our families (where applicable) to be fiscally responsible and maintain a roof over our heads and be able to have food on our table.  It is only from there that we can build a foundation upon to live a happy, meaningful life.

So ask yourself, how long could you exist on your savings alone?

AND

If that time frame isn’t long enough, what are you going to do to change that?

Happy sales my friends and don’t forget to put those bonuses to good use.

Cheers

TSW

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