He Said She Said: Variable Income And Risk Taking

Today we’re bringing you another round of He Said/She Said.  These posts are really your chance as readers to hear how discussions (and sometimes disagreements) play out when managing our lives with each other.  For a look at some of the past He Said/She Said discussions – check ‘em out here.

 

Background On Today’s Conversation

February and March were pretty stable in terms of income from our jobs* ($6,134).  But if you’ve been following our blog for a while, you know that we have a pretty variable income stream and can also have insane months like January 2013 ($17,277), or November 2012 ($16,093).  In fact, if you look at our income over the past year or so from our jobs, it looks a bit like a roller coaster.

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The vast majority of that roller coaster ride is due to the variability of Mr. PoP’s income from working in commission sales.  And mind you, this roller coaster is what it looks like after Mr. PoP utilizes a program that his company offers that allows him to smooth out his income stream by taking what’s known as a “draw” on expected commissions throughout the year.   Basically the company fronts you part of your expected commissions each month and as you earn those commissions you repay that draw account first, then any over flow goes straight to your paycheck.

Take away the smoothing effects of the draw and the neutralizing effects of my own steady paycheck, and you can imagine the roller coaster could easily start whipsawing you all over the place.  It can present challenges in planning your finances out too far in advance, as well as challenges that can arise from riding the emotional equivalent to riding the Batman at Six Flags.

For those of you that haven’t ridden the Batman…  When you’re watching this, know that your legs are actually dangling as there’s no platform underneath you during the ride.  

So how does variable income play a role in our relationship and in our approach to finances?

 

He Said

I love sales the way Paula Deen loves butter, but not knowing what your check will look like the next month is not my favorite part of the job. It can be hard enough to maintain your cool when your manager is breathing down your neck about a contract that isn’t in yet, but if you factor in the financial stress that low-performance can cause, you have a recipe for diabetes disaster.

There is no controlling the manager, but I think the lack of a stable paycheck helped us plan even better for the future. In the early days of our marriage, we didn’t spend anything because we didn’t know what the next month would bring; now we spend very little because we hope to be financially independent some day.

Again, this is not to say that sales is a bad gig; I heartily recommend it to anybody. So my monthly income is indeed variable – so what? My last non-commission job was for $40K.  Last year’s commission work was $110K. To paraphrase Charlie Munger (my second favorite investor!), do you want a lumpy 17% return, or a flat 7% return? I’ll take the lumpy 17% every time, partially because I know we have the financial wherewithal to weather the storms.

 

She Said

Having a partner working in commission sales is a bit of an odd bag.  I want Mr. PoP to do well and be successful, but I don’t want him to feel as though he’s under any pressure from me.  I’ve heard rumors that spouses of some of Mr. PoP’s colleagues will almost act as “second managers” to their partners near bonus time.  Post it notes will appear on the bathroom mirrors asking, “How are your sales numbers looking this quarter?” or with friendly reminders that “We need this bonus to pay for the pool!”

I know Mr. PoP, and I know this would not go over well if I attempted it.  In fact, sometimes I wonder if Mr. PoP might be stubborn enough to intentionally blow a bonus if I pushed him too hard to get it (Ha! How did she know that?-Mr. PoP).  This theory is in part based on the fact that Mr. PoP and I are well aware of the fact that if I had pushed him to propose earlier in our relationship (rather than waiting for him to finally get around to it after 6.5 years of dating), he most likely would have broken up with me out of stubbornness (Oh yeah, that’s how…).

So instead, I try very hard to ignore the variability in Mr. PoP’s income.  We celebrate his big wins in much the same way that we temper the tougher days at work when a contract falls through – by going for a walk around the neighborhood.  Holding hands as we walk, I remind him that I love him – and that I don’t love him any more on days when he experiences a big success and don’t love him any less on days that he experiences a large challenge.  This seems to work at leveling the emotional aspect of that roller coaster.

As for the financial part… well, I think my non-variable income, and our ability to live off of just it if necessary, frees us up to let Mr. PoP take more risks in his work.  And hopefully by freeing him up to take some calculated risks here and there, we’re seeing more Benjamins because of it.  But it’s kindof impossible to do a double-blind study to test that theory.

 

* These income after jobs figures are the net amounts that get direct deposited to our accounts from our paychecks after taxes, health care, 401K contributions, etc are all taken out.  

 

Have you or your spouse ever had a variable income stream?  How did you view it?  Did it have an impact on your relationship?


 

54 comments to He Said She Said: Variable Income And Risk Taking

  • W works in sales. It has worked well for us, mainly because his base salary is still higher than what he used to make at his old job, so anything above base is just thrown towards savings and debt!
    Michelle recently posted..How To Make Money BloggingMy Profile

    • Yeah, Mr. PoP looks at it that way too. His “base” is around where his previous non-commission job was. But at his job, if you’re just making your base, you’re probably not going to be there for too many years.

  • I think it’s good that Mrs. Pop makes a stable income so that you can make it through any bad months (if you ever had any). It would be hard to be single and work for commission, but being married in that position isn’t so bad. Our income varies somewhat, but we have a base income that we know is coming in so at least we can plan around that.
    Holly@ClubThrifty recently posted..Planning Ahead: The Advantages of Life PlanningMy Profile

    • I think you’re definitely right that being married makes it way more doable. Though at least his current company has the draw to smooth it out a bit which helps single people. His last sales draw had a teeny tiny draw and it had to be resolved every month. Mr. PoPs just gets resolved once per year.

  • My online income (side business) is variable and so we had some pretty wild swings from month-to-month. I’m very conservative with my budgeting/forecasting tool so I’d usually project less than we actually made. That helped.

    My wife stays at home full time now, so we live off of my salary. When we incorporated our business last year we’ve set it up so that she draws dividends from the company, which is taxed at a lower rate.
    Robb recently posted..How I Saved Over $300 On My House InsuranceMy Profile

    • Nice that your wife gets dividends. How are you guys incorporated? S-Corp? Though those would be taxed as normal pass-through income…. Is incorporation completely different in Canada? I don’t know too much about it yet.

      • I don’t know much about S-Corp or LLC. We’re incorporated in the province of Alberta and my wife and I are shareholders. Any money left in the business is taxed at 14%, rather than me taking it as personal income and paying 36% tax.

        To withdraw money from the corporation, we’ll declare dividends in my wife’s name. She can take $11,000 in income without paying tax and then she’ll pay 15% on the next $6,500 and then 25% on the next $25,000.
        Robb recently posted..How I Saved Over $300 On My House InsuranceMy Profile

  • We’ll be starting on this next year when DH is done with his dayjob and starts consulting. (We also had a similar year when he was working on a start-up, but we saved a year’s salary in advance to draw down from.) Luckily we can live on almost my salary alone, and I’ve got variable income of my own fixed to come in this summer and next summer which will cover us mostly if he doesn’t make *anything*. (Though if he doesn’t make anything after 2 years, we will have to re-evaluate anyway.)
    nicoleandmaggie recently posted..In praise of our partnersMy Profile

    • Just curious – How much are you able to vary/boost your income? I know my MIL has had different income levels as a prof from time to time because of taking positions as a chair, being on dissertation defense teams, teaching summer or inter-session courses, etc. She’s got a state pension, so there’s an element of wanting to make sure her final 5 years are as high as possible since that’s what her pension will be based on.

      • The big thing is summer salary– I can make up to 3 months of salary each year if I do well with grants. The ROI is huge.

        I get little stuff too– reviewing fees, speaker fees, writing the occasional policy brief. Usually I say yes when these come to me but don’t seek them out. I’ve also gotten some awards with money attached.

        I do not teach additional classes and we don’t get paid to do dissertation defenses. I’m also avoiding administrative duties like the plague.
        nicoleandmaggie recently posted..In praise of our partnersMy Profile

        • Yeah, dept chair was a mixed bag for my MIL. She liked it a LOT the first few years, but then the dean was replaced and she was miserable. It was a lot of drama, but she’s so glad not to be doing it anymore.

  • “you want a lumpy 17% return, or a flat 7% return?”. I want the flat 7%. I could not survive the stress of an unknown income but it is great that you are not pressured to perform at home.

    Home should be a sanctuary away from all stresses and filled with love and support and dogs.
    Jane Savers @ The Money Puzzle recently posted..Ten Bucks For A Buck And DoeMy Profile

    • And cats! Kitty PoP is pretty supportive, too =)

      We’ve built up a safety net where the lumpy 17% is good for us, but I completely understand the discomfort of the risk without that safety net and viewing a flat 7% as a better option.

  • Mr Pop sounds like he can be stubborn in the same was as me :)

    My g/f used to work in pharmaceutical sales which was pretty variable in the same ways. There would be really great months and some forgettable months. I think the key to making things work with such a variable income is to live below what you’d make in your bad months and treat anything extra as bonus.

    In my g/f’s situation she kept her expenses so she could live entirely on the “base” portion of her salary and her commission was all gravy.
    The First Million is the Hardest recently posted..Infographic: How Americans Spend Their Tax RefundMy Profile

    • Oh he’s stubborn as a mule sometimes – but he’s my mule, right? =)
      I think your GF totally had the right idea. Living on the base seems like the safest way to approach this – and it gets easier when you’re sharing income/expenses with a partner.

  • I think you guys have set yourselves up very well to deal with this variable income. It could be worse in so many ways – without the smoothing program, if you didn’t have Mrs. Pop’s income, or if you really needed the high income months instead of just wanting them for achieving FI faster. I love Mrs. Pop’s description of how she supports Mr. Pop (in contrast to some other spouses) – I think I can take a lesson from this!

    I think I would be able to deal with a variable income only if our cost of living was quite near the minimum months or if we had a biiiiiig cushion. Having other income streams that are ramp-up-able for lean months might also help.
    Emily @ evolvingPF recently posted..The Real Reason I Am into Personal FinanceMy Profile

    • Glad you liked how we “celebrate”. Some of the other spouses think it’s weird. They expect everyone to make a huge deal out of every commission and spend lots of money on a fancy dinner or new toy for the house, but I don’t really get that. I don’t ever want to give Mr. PoP that my love is dependent on his income, because that’s just not the case!

      We’re working on ideas for more other income streams, too! It would be neat if you had two cyclical businesses that were on opposite cycles in terms of their busy (and profitable) seasons… =)

  • My bf and I have steady incomes, though he has a side gig where it can be a year of great successes or a year of none. That’s shocking (and sad) that spouses would really pressure their significant others and leaving “friendly reminders” – it sounds like you two have a rock solid approach completely opposite from that.
    anna recently posted..Currently… the overshare edition!My Profile

    • I got weirded out the first time I heard about those kinds of methods of encouragement… I don’t criticize or anything, but boy I think that would backfire in our relationship! Maybe some people just function better with that sort of intense pressure than Mr PoP and I do.

  • If we were in this situation, I think we’d live off the regular income and save all of his (the commission income).

    T is an hourly worker so his income varies a little bit, but not to that degree :)
    eemusings recently posted..The kinds of friends you needMy Profile

    • Does T get the chance to pick up extra shifts? I guess what I mean, is the variance by his choice or by limitations on hours from above… I think it can change the psychological impact of it. But either way, I think you’re spot on by trying to live just on the other income and banking the one that varies if possible. =)

  • Here’s how I look at the chart. It appears that you have a guaranteed income of around $6000 per month. I would plan my budget around that, then consider everything else gravy and shove most of the extra into my investment account.
    My Financial Independence Journey recently posted..A Brief Primer on Options: Part 2 (Reading an options table, opening and closing options)My Profile

    • Yup, the $6K is about what my regular income + Mr. PoP’s base + draw is. We’re aiming to keep expenses around $4-$4.5K per month this year. Hopefully we can stick to that and not let things creep up!

  • That must be such a great feeling to know that you could just live on mrs. Pops income. It’s like mr. Pop is playing with house money. I think people typically undervalue risk in income streams. I whole heatedly agree with your second favorite investor!
    CashRebel recently posted..Altruism and Charity: Where do they fit in the budget?My Profile

    • I think fear of the unknown is a big part of why risk and variance are undervalued in income streams. It’s just not something most people are used to. We get all these expenses that need to be paid back in regular chunks (mortgages, phone bills, etc.) and when the income bounces around people that aren’t used to it or don’t have a cushion can get slammed.

  • From the graph, looks like the baseline is around $6,500. Adjust the lifestyle to live on that, and anything else is a bonus. Don’t see the issue. This round to Mr. PoP.
    101 Centavos recently posted..Tamales Will Make You Obese… or Will They?My Profile

  • When I was growing up, my dad worked in sales. I don’t think he received a commission, but he could get a hefty bonus (25-33% of his salary) if his yearly numbers were good. My mom stayed home with the kids, so we were a one income family in an expensive area (Orange County, CA). Now that I’m budgeting for myself, I realize how much planning that must have taken on my parents’ part. They did it by living very much below their means. They lived below my dad’s base salary, and any bonus he received went into savings and/or towards a longer term goal.
    JW_Umbrella Treasury recently posted..Small Splurges: DIY Spa DayMy Profile

    • I think living below your means is a big part of it when it comes to a variable income. Looks like your parents did a great job being a good example!

  • I’ve worked with a variable income nearly my entire life. My spouse isn’t a fan of the “guess my paycheck” game, so I quickly established a business account and pay myself a set “salary.” That made my income predictable for the family (with me paying myself nice “bonuses” when the account grew too large). When I started doing, to be safe, I’d only pay myself $300 so I could grow the account enough that it’d sustain a drought period.
    AverageJoe recently posted..Understanding Financing & Education Loan Options for Graduate SchoolMy Profile

  • This draw option has to be stressful, but pushing you to at least make that amount! I used to have bonuses and worked kind of sales but my base salary did not depend on how much I sold, and as an introvert, I could never have a job that does.
    Pauline recently posted..Who is (really) retired?My Profile

    • At Mr. PoP’s company the draw isn’t too stressful since it’s pretty much the expectation that everyone will make the draw by the end of the year. Realistically if you’re not making the draw over time, you’re probably not going to have your job for a whole lot longer and most people know that.

  • I always admire people who can do sales, esp. an introvert like Mr. Pop. Props! I don’t think I could ever do it! However, it sounds like you guys have a really steady, smart way of handling his variable income. The walks around the neighborhood are really sweet too. The emphasis should definitely not be on big dinners or fancy toys for the house. What yall are doing is definitely the smart approach. My freelance income is variable, but I have a very low forecast for it factored into the budget. Usually I exceed it, but I’d rather plan for a small amount each month than hope for something bigger.
    Cat Alford (@BudgetBlonde) recently posted..One Lump Sum: 5 Ways To Spend ItMy Profile

    • Mr. PoP is the king of low forecasts! It’s nice because then I’m usually pleasantly surprised when his big checks drop into our accounts at the end of the month. Totally agree that planning for a little is better than being disappointed when something bigger doesn’t come through.

  • What a nice post!

    It sounds like Mr. PoP comes down on himself pretty hard. Very sweet to see the way you support him. Going for a walk is great to put the mind at ease (shout out to MMM).

    “We need this bonus to pay for the pool!”

    I couldn’t help but think of the scene from Lampoon’s Christmas Vacation. You and Mr. PoP should act out the scene at fincon! I’d pay good money to see that! Heck, I’d even be Uncle Eddie.
    Mr. 1500 recently posted..Thursday Rant: Stupid People EditionMy Profile

  • I hate losing too. Just way too stubborn…

    This is where Clark finds out his bonus check that was going to pay for the pool is not actually a bonus check:

    Mr. 1500 recently posted..Thursday Rant: Stupid People EditionMy Profile

  • […] Variable Income and Risk Taking at Planting Our Pennies […]

  • I think you guys do variable income perfectly. It probably makes Mr.PoP a better salesman. If you know you have to close a deal or you won’t eat that month, I bet your sales tactics get way more aggressive, which would turn some buyers (like me) off. I’ve never worked on commission but my business income does vary. I have always had a set salary that I can pretty much count on and if there is enough left to take an extra dividend, that would be extra sweet.
    Kim@Eyesonthedollar recently posted..How Can You Still Have Student Loans at Age 40?My Profile

    • Do you run it pretty much how Joe does? Keeping a salary and then leaving the money in the business until enough accrues to take a dividend? I like that approach for a small business owner. =)

  • CincyCat

    Yes! My DH and I got married while we were both in college, and he was a co-op student. We used to call it “the three lean months, and the three months of plenty”. :) My income was relatively stable since I finished school before he did, but it still required a great deal of discipline not to overspend while our income had the “bump” during his co-op terms.

  • […] PoP from Planting Our Pennies presents He Said She Said – Variable Income And Risk Taking, and says, “Variable income can play a big role in a relationship and a couple’s […]

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  • I really love the fact that you guys openly share your thoughts on topics that matter. I’d really like the wife to get into sales, as I can’t to a certain degree right now. I think she’d be good but she is tentative. Any tips of where to land a gig like yours? Where do you recommend someone begin if they want to break into a sales career?
    Thanks for another great post.
    Cash Cow Couple recently posted..Scottrade Review: A Client Centered BrokerageMy Profile

  • One other thing to add, the wife is pretty outgoing and loves people, but doesn’t want to have to hard sell. What do you think of that?
    Cash Cow Couple recently posted..Scottrade Review: A Client Centered BrokerageMy Profile

    • The more differentiated your product, the less you have to hard sell. Mr PoP has traditionally sold products and services that are “best in class”, so it’s more a matter of figuring out what the clients needs are and matching them up with the product. While there are price negotiations, people know they are getting a quality product so it’s not a race to the bottom at the expense of the sales person’s commission.