Hello everyone! Enjoy this post by my blog friend Emily.
I am in my first month of my official funemployment!
I finished my PhD last month and am waiting on my husband, who also just finished his PhD, to decide on his next job so I can start applying for full-time jobs in our new city (wherever that is). In the meantime, I’m working on lots of online projects and volunteer work, and I also have a contract job.
While I would like to do nothing more than play on the internet and write blog posts all day, I need to set goals to keep myself on track in terms of accomplishing everything I want to this fall.
One of my goals is to bring in a bit of income on the side through my contract job and also whatever may come from my websites. Because we were living below our means while we had two incomes, between my husband’s income (he recently got a raise) and our cash savings, I don’t have to bring in any money for us to make it.
However, I would like to keep from dipping into savings as much as possible each month and even put away some additional money.
I have decided on a new way to motivate myself to take on as much contract work as I can and to find ways to bring in more money from our online projects. It’s something that anyone with variable income can do (and might do already).
As my earnings for each month accumulate, I’m going to calculate which component of our budget I would be able to fund with my variable earnings alone. For instance, if I earn $X that means I have earned enough to pay our internet bill, or if I earn $Y we could reinstate our eating-out budget next month (one of the few cuts we made to our budget with my change in employment status).
It’s not as simple as saying “I earned $80 this month, that means we can spend $80 on eating out!” I have to account for taxes and our percentage-based budget.
1) Taxes: Taxes will take a total of 36.1% of my pay because I am self-employed. That’s 15.3% for self-employment tax plus our marginal federal tax rate of 15% (it’s unlikely that I’ll earn enough to bump us up to the next bracket) plus our state’s new flat tax rate of 5.8%.
2) Percentage-based budgeting: My husband and I have agreed on what to do with a certain percentage of all income we bring in. We give 10% of our income to our church and put 15% into our Roth IRAs, so another 25% of my variable income is committed to these purposes.
Together, that means that for every $100 I bring in, $36.10 will go to taxes and $25 will go to our percentage-based budget, leaving $38.90 available for my budget-based goals.
The table below shows a few of our budget categories with what we have allocated to spend on them and also the amount of money I would have to earn on the side to fund that category.
As you can see, it will take quite a bit of side income for me to be able to knock out our grocery or rent budget categories! I’ll definitely be working on the water bill at first this month. But it’s better to be realistic than to be caught unaware by taxes, and I also enjoy that at the same time I’m giving and saving for the long-term with every bit of income.
I’m going to expand this table to include every component of our budget, ordered from smallest to largest.
Each month as I complete my contract assignments or have website income come in, I’ll tally up what I’ve earned and cross off the next-highest budget category that amount of income represents.
Maybe I’ll set an additional goal to get to the next category up in each subsequent month!
Author Bio: Emily runs the blog Evolving Personal Finance, which has a new funemployment theme running through this fall. She also frequently writes about living well on a low income, managing money in marriage, and finances for graduate students.