Debt-Free Forever Gail Vaz-Oxlade (best ereader for epub TXT) 📖

to accumulate money. For example, in the Transportation jar, there’s money for both gas and car repairs. If you spend all the transportation money on gas, or borrow money from that jar because it’s “left over,” you won’t have anything set aside when it comes time for an oil change.

Once you start keeping track of your money, you will spend less. That’s part of the magic! Having become aware of your money and how much (or little) you have, you will become far more choosy about how you spend it. Simply by paying attention, you will save money. If after six months you have a lot of money left in the jars that you’re not going to spend, leave enough of a float to cover unusual expenses and by all means slap the rest against your debt or into your savings. You should also revamp your budget numbers so they reflect your lower-than-you-thought spending.

Okay, you’ve balanced your budget and you now know how much to pull from your bank account each week (or however often you’ve chosen) for the jars. It may be that some jars, like Clothing & Gifts or Other, may remain empty until you’re back in the black. All the rest of your money stays in your bank account and can be used to pay your bills.

Managing your money isn’t rocket science. And it isn’t magic. It’s discipline. You have to be determined to live on what you make, passionate about getting your consumer debt (credit cards, lines of credit) paid off in three years or less, and convinced that it is important to have some money set aside for the future.

‘Course, if you’re at all wishy-washy about what it’ll take to get you out of debt, if you just can’t work up the guts to do things differently, it won’t be the jars that failed.

DEALING WITH A VARIABLE INCOME

Whether you’re a contract employee, a freelancer, working for yourself, or working on commission, one of the biggest challenges you face is Feast Today, Fast Tomorrow Syndrome. One month you do really well, have enough to plan a holiday, build a deck, buy some new clothes. The next, you’ve barely got enough to make it to the end of the month without racking your cards to the max.

Working with a variable income isn’t as hard as people think it is. You can still make a budget and stick to it. You can still have the things you need and the things you want. But you must have a plan.

First, you need to set yourself a “salary” and live on it. If your work efforts bring in $2,000 one month and $6,000 the next, and you think of all that money as spendable, you’re going to run into trouble, it’s only a matter of time. So smooth out your cash flow by deciding what your minimum monthly income needs to be to keep body and soul together. This is your Salary. No matter how much money you bring in, it’ll all go into your Business Account and you’ll only transfer your Salary into your Household Account for spending.

To figure out your Salary, do up a household budget that covers all your basic monthly costs: food, housing, transportation, medical, and the like. The “we can live without it” items like clothes, toys, and partying don’t make it to this list. However, savings and debt repayment do. And don’t forget taxes. This is your first-tier budget.

On your second-tier budget, needs like home maintenance, clothes, and entertainment should also be part of your Salary, but with the proviso that if the going gets tough, these spending categories can be shorted until the money starts flowing in again.

Now, you could have a big fat monthly total if you’ve weighed yourself down with big fixed expenses—like that $800-a-month car payment or a home that’s way too much for your wallet. Ditto if you’re carrying tons of debt. Let’s assume for the purposes of this discussion that if you have those things you can pay for them. (If you can’t, this may be the time to reassess your priorities.)

In good months, you’ll have plenty left over in your Business Account. Don’t be tempted to touch it. It’s your cushion. In a month when you haven’t brought home as much as normal, you’ll still have a whack of cash in your Business Account so you can transfer your Salary to your Household Account without a hiccup.

Use whatever additional income you earn above your tier-one and tier-two budget needs for other goals. Whatever you have in your Business Account—your Business Buffer and earnings beyond your Salary—should be invested in a high-yield account. If you’re doing very well financially, you can decide what other goals you want to accomplish (like the deck, a vacation, or a shopping spree). Build or replenish your emergency fund if you’ve dipped in, and pay down your debt. Make sure you’re also having some fun.

Being self-employed brings loads of terrific benefits along with some very interesting challenges. I’ve been self-employed for about 30 years—some lean, some luxurious. And I wouldn’t swap the flexibility self-employment offers, no matter how hard I had to work when things were busy. There was one period where I worked 17 hours a day, 7 days a week for about 7 months. I literally rolled out of bed and to my computer, rolling back in to sleep. I had no life. I made a lot of money. And a good thing too because when I finally decided to have kids, because I was self-employed I wasn’t entitled to any mat leave benefits. But I had a whack of cash set aside. See what you can do with a plan?

GAIL’S TIPS

Figure out what it takes to live modestly for a month. You’ll need to cover your regular bills like mortgage or rent, utilities, car payment, gas for work, food. Once you think you’ve got the bare bones covered, look at how much cash you think