5 Wall Charts, Savings Buffers, and Knowing When to Quit the Day Job
Wall Charts, Savings Buffers, and Knowing When to Quit the Day Job
Last time I wrote about the monthly practice of tracking and evaluating your income and expenses. This month I wanted to write about some things I do that follow from this information.
First is a really simple exercise to graphically give you a bigger picture. Using a piece of graph paper I maintain a wall chart depicting my income and expenses. It’s really easy to do and hardly takes any time. On the vertical column I mark off dollar amounts. I’ve been having one square of the graph paper represent $200. Then in the horizontal line I have the months.
Every month after doing the exercise I spoke of last time I go to my wall chart and record my total figures for the month. For my total expenses I make a blue dot where it falls on the dollar scale. For the total income I make a black dot. I use the different colors so I can readily distinguish the two from each other. Then I draw lines connecting these new dots to the corresponding dots from the previous month. What I end up with are two different colored lines showing the long-term changes in my financial picture.
One final part of this exercise is to hang it up somewhere so you will see it everyday. For me it’s tacked to the wall at the end of my bed, thus it’s often the first thing I see in the morning. That’s it. That is the entire exercise, like I said very simple and quick.
Don’t let the simplicity of this fool you into thinking its of little value. When changes in your life affect your financial picture this becomes graphically visible. I can tell at a glance when I graduated from college, when I was working a day job, and when I became a full-time artist. However, the most valuable part of this chart is motivation. By keeping it visible in your life everyday it provides a constant reminder to pay attention to your finances. For me it has become a constant game each month to keep the income line above the expense line. When I have expenses that can wait I’ll try and hold them until a month I know I’m bring a lot in. Basically this chart quietly but insistently keeps my financial goals in the forefront of my mind. I don’t ever lapse into a mindless spending spree because of this daily reminder.
Oh yea, when you make the wall chart be sure that vertical column of dollar amounts goes WAY higher than you think you’ll ever need. An interesting feature of this exercise is that, along with your income and expenses, the top dollar figure stays in your sight too. As the chart shows it to you daily in relation to your income this top dollar amount ends up becoming a goal, or even an expectation. Once we believe it is possible to attain something we seem to attain it. When I began doing this I set my top dollar figure about 4 times higher than I expected to be at. My expectations changed, my income rose, and I ended up taping an extra sheet to the top of the chart! I’m on my second wall chart now and I believe I will blow off the top of that one too before it’s done. It’s truly an amazing thing.
For quite a while I kept thinking the lines on my wall chart would even out. I wanted to see the income line forming a steady upward slope, and have the expense line flatten out at some reasonable level. The closest I have ever been to achieving this was while I was working a regular job for my primary source of income. As a self-employed artist my chart has maintained peaks and valleys that put all the Earth’s mountain ranges to shame! I used to think I was doing something wrong, but I’ve since realized the chart is simply pointing out the truth to me. As an artist I will have to deal with huge month-to-month changes in income and to a lesser degree, expenses.
This leads me to the next issue arising from the information gleaned by monthly tracking of finances, keeping a 6-month buffer. After you’ve been tracking your money for a while you can get a pretty good idea of your average cost of living for a month. Multiply that figure by 6 and keep this much in savings at all times. My first long-range financial goal was to build this cushion against hard times and the simple reality of my sporadic art income.
Though I have rarely had to dip into this buffer it has provided me great peace of mind. I once had a month where the sum total of my income was 100 bucks! If I didn’t have that savings I would have had to frantically look for another job. However, because I did have the money I just grumbled and moaned as I continued to make art in my studio. Also while I never know exactly where the money is going to come from each month, the long-term chart reassures me that it does keep coming in and the occasional poor month is normal. Having this substantial sum of money on hand allows artists to ride out the times when sales are down with little discomfort.
It’s also a secure feeling to know you can easily deal with most major, unexpected expenses. If my car were to give it up tomorrow I wouldn’t be happy, but I could go out and buy another with cash (and I will only buy cars with cash, never with a loan). A few years ago I had a furnace installed in my studio, finally making it comfortable to work in during the winter. Then two weeks later the furnace in my home broke down for good. Before I had a 6-month buffer this situation would have been a major crises. I might have been living in my tiny studio for a while, as it would be my only heated space. Instead I utilized my savings, had the furnace replaced, and worked to rebuild the account. There was no need to do without, borrow money from a bank, or worse yet purchase the new furnace with a credit card. For me, this buffer is an enormous reducer of stress, and less stress gives me a more fulfilling life as an artist.
There’s one final thing I gained from knowing concrete figures for my income and expenses that I want to share here. It was no longer a mystery of when I could quit the day job and begin making art full-time. It was also not a terribly risky move. I had the numbers all laid out for me. I knew how much I was making from the sale of my art. I knew how much it cost me to live each month. I simply had to see my art sales equaling my expenses, then with a six-month buffer in the bank I could confidently put in my notice of resignation.
Ok, I admit I wasn’t really all that confident. Making art for my living was a dream come true and I kept expecting some unforeseen, harsh reality to wake me up from that dream. I comforted myself with the knowledge that I left my former employer happy enough that I would be readily hired back if needed. However, month after month I was able to pay all expenses and my savings account wasn’t dropping. Eventually it sunk in that this was really working!
You can make it work for you too!