You’re going to think I’m a dork for saying this, but it was really fun to piece together a new format for these monthly budget posts. Years ago, I used to share my budgeting “plan” at the beginning of the month, then show you how the final numbers came out at the end. Last year, when I decided to try and live on 50% of my income, my income also began to fluctuate greatly from month-to-month because of all (or none) of the freelance I did, so I stopped sharing my plan and just showed you what the final percentages were. And for the past few months, I’ve stopped budgeting altogether, because I know I will always spend somewhere between $2,100-$2,300/month, and then save/travel with the rest.
So, how do you budget/format these posts, when you work for yourself and your income will always fluctuate!? Well, here’s my first attempt, along with the list of items I bought in July.
First, I want to say that I know why budgeting is so difficult for people whose income varies from month-to-month. When you don’t know how much money is coming in (or when), spending it on anything can feel stressful. The trick to overcome that anxiety is to already know yourself + your spending habits so well that you know how much money you need to live a good life each month. After years of tracking my spending and budgeting, I know I typically spend $2,100/month on my living expenses, and up to $2,300/month if I have any birthdays, celebrations or extra medical expenses. So, I don’t budget… but I track my spending weekly, to see how I’m doing.
The other trick to overcome the financial anxiety that comes with working for yourself isn’t really a trick… it’s a buffer. When I quit my job, I wanted to have $10,000 in my chequing account, so I would never have to worry about making/paying off my regular expenses (I put everything on credit to earn rewards). Instead, I only had ~$8,500, which is still 4x my regular expenses; that buffer stops me from having to check the balances of my accounts every day and helps me sleep better at night. I’ll eventually get it up to $10,000, just so I reach the original goal I set for myself, but knowing myself + having the $8,500 buffer is what helped me feel confident enough to take the leap into freelance.
Before I quit, I ran the numbers and knew I would need to earn at least $6,100/month if I wanted to bring in the same amount of money I was earning before (because I now need to set aside 35% for income taxes). If I earn $6,100/month, I’ll have to set aside $2,135 for taxes, which would give me just under $4,000 to play with. After spending up to $2,300 on living expenses, that would give me about $1,700 to travel/save with. I had the potential to earn that amount + more, in July, but I actively chose not to. I started and finished the month off strong, but took a lot of time off mid-month for my two trips, my move and a friend’s emergency… and I don’t regret it.
There were moments when I felt guilty about not working more hours, or not making more money, but I kept reminding myself that being in control of how much I work is why I wanted to work for myself, in the first place. In total, I invoiced for $4,773 – $1,670 of which had to be set aside for taxes; that means I had $900 less to work with than I usually do. Here’s what I did with the money.
Life Expenses – 52%
For new readers, “life” expenses includes all my regular living expenses, like housing costs, food, car insurance and gas, etc. as well as all my insurance policies, medical expenses (trips to massage or physiotherapy), gifts for others and charitable donations. My numbers were all fairly standard, this month, except that I donated more money than usual (including to my friend Anthony who is donating his birthday to The Hope Effect). The other big expense I had to pay for, of course, was my move… but I’ll get ~$475 back next month, when my security deposit is returned. All-in-all, I spent 52% of my income on life. When I start earning $6,100+/month, that number should be in the 34-38% range.
Travel – 13%
Earlier this month, I drove down to Portland with Sarah to go to WDS 2015, and then I went to a bachelorette party on Salt Spring Island. Altogether, the costs for both trips was manageable, and I had a great time (especially on Salt Spring!) but I’m really happy to say that was the last of the travelling I’ll be doing this summer. It’s not that I don’t love travelling… I do, for so many reasons! But I’m just ready to finally put some roots down and explore more of Vancouver Island. In the past week, I’ve already done two new hikes and want to do more this summer. I do have plans to travel to two conferences this fall, but those trips will likely be the only time I get off this island in 2015… and I am a-ok with that!
Taxes – 35%
Most people I talk to tell me to save 30% of my income for tax time, but I’m scared it won’t be enough, so I’ve decided to save 35%. I’m going to owe a large sum of money to the Canadian government, next spring, and I’d rather have more money than not enough to cover it! I consider this one of the most important categories in my budget, and I almost think about it like a debt. Similar to the way I used to tell myself I’d pay off my credit card debt “one day”, it would be really easy to say I’ll save for taxes “one day”. But if I don’t save the full 35% each month, and instead try to save 37%, 40% or 45% next month to catch up, I could quickly end up in a situation where I owe more than I can afford to pay.
If you ever see this say anything below 35%, feel free to call me out.
Savings – 0%
So, guess what happens when I “take home” $3,100 (65% of my income this month) and spend $600 on travel? I don’t save a penny. I’m not happy about this, and I don’t plan on repeating it… but it’s August 3rd, so I can’t turn back time and change anything now! Instead, all I can do is take it as a lesson learned: if I want to save money, I need to work more and earn more money.
If I earn $6,100/month, I’ll be able to live off 36%, set aside 35% for taxes and save 29% – if I don’t travel at all. So, the second lesson learned is that, if I want to save 30% and still travel, I need to earn even more money. Nobody said self-employment was going to be easy! But I still think it’ll be worth it… now, if you’ll excuse me, it’s time to hustle. :)
Shopping Ban Update
Now that we’ve looked at the numbers, it’s time to give you a shopping ban update. Four weeks ago, I made the crazy decision to extend my yearlong shopping ban to a two-year ban. At first, I thought it wouldn’t be that hard, but I have to be honest and tell you I’ve been tempted to shop at least half a dozen times this month – mostly for new clothes, because nothing is fitting right these days.
The other reason I’ve decided to do a ban for a second year is so I can track every single thing I do buy, and show you all what an average (female) consumer purchases in a year. I only purchased 4 things in July, 2 of which were definitely female-specific. I also hate taking cold/sinus-type meds, when I’m sick, but there were a few days where I don’t think I would’ve gotten out of bed if I hadn’t…
Items I purchased in July 2015:
- 1 box of tampons*
- 1 travel size bottle of Advil (while in Portland)
- 1 box of Tylenol Sinus meds (got sick after moving)
- 1 pair of TOMS** (to replace the ones I tossed in June – taken off the approved shopping list)
*Many of you have suggested I try switching to a DivaCup, to save money and cut down on my environmental impact, so I’m going to pick one up in August, rather than buy more tampons.
**I was trying to hold out for a pair of Sanuks, but I searched high and low and eventually got to a point where I needed shoes… so, TOMS it is. We’ll see how they hold up…
Overall, I guess it was a successful first month of working for myself, considering that I actively chose not to work much mid-month… but I’m going to make sure my numbers are very different in August. I’m not travelling at all, but I did just book my flight to Charlotte for FinCon last night, so a little bit of my budget will be allocated to travel expenses. Now, I just need to earn more, so I can start saving for retirement again…
How did your month finish up!?