Are You On a Fixed Income?

03.24.08 | Money | 1 Comment | by junger

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The other day, I was watching a news report on how the stock market's up and downs are affecting senior citizens — specifically, those on a fixed income.

It got me thinking — am I on a fixed income? What does it mean to be on a fixed income?

Here's what Wikipedia has to say:

Fixed income refers to any type of investment that yields a regular (or fixed) return.

For example, if you borrow money and have to pay interest once a month, you have issued a fixed-income security. When a company does this, it is often called a bond or corporate bank debt (although 'preferred stock' is also sometimes considered to be fixed income). Sometimes people misspeak when they talk about fixed income, bonds actually have higher risk, while notes and bills have less risk because these are issued by Government agencies.

The term fixed income is also applied to a person's income that does not vary with each period. This can include income derived from fixed-income investments such as bonds and preferred stocks or pensions that guarantee a fixed income. When pensioners or retirees are dependent on their pension as their dominant source of income, the term "fixed income" can also carry the implication that they have relatively limited discretionary income or have little financial freedom to make large expenditures.

So, if your investments are paying out a certain amount of income over a given time period, you're on a fixed income.

But what if you're on a salaried paycheck? Aren't you getting a fixed amount of income every paycheck?

For the most part, I know how much money will be coming in to our bank account every month because our paychecks are consistent. Isn't that being on a fixed income?

For hourly workers, salespeople who work on commission and 9-5ers with inconsistent part time work, each month, your budget's "intake" column probably looks different. You don't necessarily know how much money you are earning until the month is over.

So if you're a salaried, non-commissioned worker, you're probably on a fixed income. Live like it.

It might seem a bit counterintuitive, like when I say I live paycheck-to-paycheck (even though technically this isn't true). Knowing how much money you have to spend, save and invest each month puts you on a fixed income — and helps you prepare to achieve your goals.

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