Don't Pay Fixed Bills with Variable Money

Throughout my time as a financial advisor, I have noticed one main difference between those who are secure financially and those who are not: how they pay their bills. Without a doubt, the main lesso
I encourage each of my client’s to learn well is to never pay fixed bills with variable money. It is in this lesson that I believe financial security is best achieved and disastrous financial events can be avoided.
With fixed income comes security and financial stability. Income from bonds, rental income from paid off real estate, royalty payments, and salaries from secure jobs are all examples of fixed money. As a result, this is the type of income you should depend on to pay fixed expenses such as a mortgage, insurance bills, school tuition, and utilities.
Variable money, on the other hand, is money from stock market gains, bonuses, stock options and deferred compensation packages. The reason this type of income is called variable is because it changes and is therefore not stable. Financial stability and security is not achieved through this type of income and as such should only be viewed to pay for variable expenses such as vacations, golf outings, and dinner celebrations.
Paying fixed bills with fixed income and variable bills with variable money is a solid financial strategy and one that will serve you well. The danger comes, however, when one begins to rely on variable money to pay fixed bills. Fixed bills are a certainty. You know that the mortgage payment is due every month and that if you want to continue to be covered by insurance, you will have to pay the bill. Variable income, obviously, is unpredictable and unreliable. I have seen countless people run into catastrophic financial trouble because their fixed expenses exceed their fixed income and as such they had to depend on their variable income for survival. When the variable income stopped, so too did their ability to stay financially solvent and pay their bills.
To me, there is no greater lesson to be learned in financial planning than to make sure that your fixed income is always greater than your fixed expenses. By building a solid foundation from fixed money and only relying on variable income for life’s fun pursuits, you can put yourself on firm footing and in a great position to whether a financial storm like we had in 2008. With that said, as you sit down to pay your monthly bills, live by these words: fixed money is for fixed expenses and variable income is for variable expenses.