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.
How do you motivate yourself to bring in additional side income? What do you do for side income? Do you connect your side earnings to your budget?
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zaby says
i am going to try doing this, hopeful i will reach my financial goals
Emily @ evolvingPF says
Best of luck! What is one of your goals that you think this method would help with?
Clarisse says
Nice one Emily and happy first month of your official funemployment! I’ve been trying to look for more side hustle to add to our emergency fund, I really wanted to have a solid emergency fund by next year.
Emily @ evolvingPF says
I love the idea of tying side income to a certain goal and especially a dedicated account. Best of luck!
FI Pilgrim says
That’s a great way to look at your budget Emily. I’m considering self employment next year and it’s sobering to look at how much I’ll need to make to “take home” the same amount!
Emily @ evolvingPF says
You get a lot of rather invisible benefits by working for someone else, yet there are also many possible tax benefits for working for yourself (or so I’ve heard). I think it’s very industry-dependent.
Mrs. Frugalwoods says
I like your method here. That’s a very specific way of goal-setting and targeting. I don’t have any goals around side income, but it would probably be wise for me to start!
Emily @ evolvingPF says
I’m already past my ‘electricity’ category for September! But I’m not going to make it to ‘groceries’ this month. 🙂 It’s really more of a way of grounding my side income in tangible amounts of money and gunning for that next level up.
Sara @ Debt Camel says
Ah the old question of revenue hypothecation, beloved of politicians and loathed by Treasury officials who have to pick up the pieces and the unintended consequences, see http://en.wikipedia.org/wiki/Hypothecated_tax.
But for your personal budget it seems like a good motivational tool to me. Because obviously you aren’t going to do anything stupid like let the lights go out because the revenue stream against your electricity bill underperformed, whilst other revenue streams did much better.
Emily @ evolvingPF says
I’m not actually hypothecating revenue in this post, although I probably would have a prioritized list if we didn’t have the one stable income that covers all the basics. I’m really just trying to take some digits of income and translate them in my mind into a real good that I consume. The only category that is being hypothecated is eating out. 🙂
Robin says
That’s an interesting way to budget on a variable income. I struggle to do that since our income is also commission based and always variable. It’s tough!
Emily @ evolvingPF says
Well, this isn’t a budgeting method so much as a motivation tool – unless you’re referring to the percentage-based budgeting component. Is your lowest-income month enough to cover your basics or do you have to smooth over several months or seasons?
Robin says
Yep, I was referring to the percentage based budget part. I’m always looking for different ways to budget our variable income so it caught my eye. Luckily our expenses are pretty low so we haven’t had too much trouble with it, but I still haven’t found a way to budget our income that suits me yet.
Myles Money says
Budgeting is SO crucial and yet I am constantly surprised by how few people actually take the time to understand their income and expenditure: ignoring your obligations is probably the easiest way of getting into unmanageable debt and yet people don’t take the time to stop and think before spending. Kudos to you and your husband for making a plan from the beginning.
Emily @ evolvingPF says
Thanks! We’re pretty in tune with our budget so this kind of exercise is very effective in motivating my side hustling.
Nicola says
I like the idea of having a side hustle that covers one of your bills – I’d not thought of it like that 🙂
Emily @ evolvingPF says
And the bigger the bill the better, right?
Kayla @ Shoeaholicnomore says
Wow! What a great idea. I love it!
Emily @ evolvingPF says
Thank you! What bill-equivalent amount of money are you striving to make in per month?
Christine says
That’s a really cool way to think of it! I’ve never thought of it that way before!
Emily @ evolvingPF says
Thanks! What is your goal for side hustle income each month and what would it correspond to in your budget?
Dan @ Our Big Fat Wallet says
I don’t have any specific goals for side income but I love the term “unemployment” – classic!
Emily @ evolvingPF says
Autocorrect? 😉 I have to correct people verbally when I say “funemployment” and then they use the term “unemployment.”
Stefanie @ The Broke and Beautiful Life says
I love percentage based budgets as a way to ensure all priorities are being funded at all times. I live on variable income (as you know), so what’s most important is making sure my income is always above what I call my “make or break number” (essential my minimum cost of living that still accounts for savings goals).
Emily @ evolvingPF says
I think the percentage-based budgeting would work well in calculating the make-or-break number as well as perhaps being different above it. 15% and 10% are our minimums for retirement savings and giving, for instance, but when we had higher income we saved and gave a bit more. I don’t exactly have those tiers in place now but it would be an interesting exercise.
William says
Dr. Emily,
Where do you keep the money that will eventually go towards taxes?
Emily @ evolvingPF says
We use Ally as our primary bank, so we have a bunch of savings accounts there, one of which is designated for future tax payments. Last year I had to file a quarterly estimated tax payment for one quarter and I expect I’ll need to again for Q4 2014. It’s nice to have that money already segregated so that we know what is really ours.
Veronica Lee says
I am loving the idea of having a side hustle that covers one of your bills.