YOU, TOO, CAN BREAK DOWN
You may be prepared for a major equipment breakdown, but what about protecting that other important asset?
Financial advisers stress the need to be prepared should illness or injury knock you out of work temporarily. “I like to see a minimum of two, more preferably six, months of savings,” says accountant Trent Leyda. For someone earning $50,000 a year, two months would equal $8,333; six would be $25,000.
HEDGING BETS
Maintaining adequate income replacement insurance and health insurance is a cost of doing business for anyone who assumes the risk of self-employment. For more information on this coverage, check the Insurance Information Institute, www.iii.org.
Californians living atop grinding plates of earth have been jerked around a lot lately, like drivers hauling shifting cargo on a bumpy road. As with the risk of a massive West Coast earthquake, major emergencies in trucking are not a matter of if, but when.
The Golden State’s odds are measured in years. Yours are in months.
Experienced owner-operators know this. Half of those in Overdrive’s database keep a fund for an engine overhaul or other big fix. They believe such accounts should be around $10,000.
Some accountants recommend not a dollar target but a per-mile saving plan. For late-model tractors, try 6 cents to 8 cents a mile, says Doug Kozeny of Truckers Professional Services and Larson and Associates in Omaha, Neb. Records show that team drivers need to save at even higher rates, possibly because many of them run just-in-time freight and tend to avoid downtime, Kozeny says.
A maintenance fund building at a strong per-mile rate tied to the age of the truck should cover not only major emergency repairs, but also tires, clutch and the like. Just don’t stretch it any further. “Most drivers are dipping into their escrow or repairs and maintenance account to take care of vacation time, downtime, kids at the doctor and dentist,” Kozeny says.
Setting up an automatic draft from your checking account to grow these funds works well, says Trent Leyda, a former driver who’s now an owner-operator accountant with Raymond James & Associates in Vero Beach, Fla. “It’s the easiest way to build up money without thinking about it,” he says. “If you have to do it on your own, typically it doesn’t happen.”
The draft can go to another checking account, a savings account or a money market account. The last, available through your bank or credit union, offers close to 2 percent interest and works well when it comes with a debit card, Leyda says. “The key is to make sure you have access to it,” he says. Many large fleets offer optional maintenance escrow funds that can be accessed right away from anywhere in the country via EFS check or similar arrangement, notes Kozeny.
Building and maintaining a healthy maintenance fund is tough, but successful owner-operators find it as necessary as putting fuel in the tank. And over time, it beats the alternative. “Once you start having a little bit of short-term money problems,” Leyda warns, “they turn into long-term money problems pretty quickly.”
