The perqs of pinching pennies

Spent some time this morning updating the Excel and Quicken books and realized things didn’t look nearly as dark as one might expect, given the current brouhaha over the economy.

On the other hand, we do recognize that any time now, the layoff ax, sharpened to a fine edge by a legislature in full Mme. LaFarge mode, may fall. So, I took a little more time to look over the current state of the safety net.

Four things have helped to weave that net:
1. I set up a “pool” account to hold my paychecks, from which I disbursed enough cash into one credit union account to cover my monthly recurring expenses, such as utility bills, insurance premiums, and workmen into one checking account and then, into a different account, enough to cover all my other expenses, which are charged on American Express and paid off at the end of each billing cycle. The disbursements are monthly. But my paychecks are biweekly.

The effect of this has been to turn those so-called “extra” biweekly paychecks into real-life, de jure extra income: the money to cover regular expenses comes out of two checks a month, and so a month with a third paycheck pours two weeks of net income into my “pool” account, where it sits and accrues.
2. I based the amount needed for monthly recurring bills on the maximumamounts those bills reach. My electric bill, for example, has reached $225 in the summer, but in December it was $63.52. Then I pinched pennies: this winter I’ve not run the central heating more than six hours, grand total, pushing each month’s bill well below what they were in 2007. I also cut my “all other expenses” budget by $300, even though I had enough income to cover the old, more generous budget.

Here, too, the net effect was to leave cash sitting in those “piggy-bank” accounts. This money has accrued by dribs and drabs over the past several months.
3. After I’d accrued enough cash to pay off the small 30-year fixed-rate second mortgage I took out to pay for renovations on the Investment House (the house my son and I are coinvesting in, part of whose mortgage is covered by rental income), I continued to put the monthly contribution into savings. I had been saving $200 a month for emergencies and indulgences. Reaching the loan payoff goal meant that I could start saving $404 a month.

Even though that doesn’t sound like much, it’s amazing how fast it adds up. Especially because…
4. My associate editor and I started a small side business, which has created a small but steady second income. All of the after-tax revenues from this activity went directly into savings.

The result: my emergency and indulgence savings quickly jumped from $600 to almost $4,000. Even after I paid $670 to insulate the Investment House and $330 for the Talbot’s clothing frenzy, I still have around $3,000 in that savings account.

When I surveyed my credit union accounts and added up the overage in each account, the total extra amount that has quietly built up over just a few months is $6,797!

That is 2.26 months’ worth of my present take-home pay: over two months of living expenses, and we’re not talkin’ Depression mode there. If I’m not putting $404 a month into savings and not buying booze and not shopping at my favorite gourmet emporium, that amount will stretch a great deal further.

Meanwhile, the amount that I’ve stashed to pay off the loan represents another seven months of take-home pay. Because the payments are so small as to be almost negligible, I’ve kept the money in savings instead of paying it off, figuring that if I need to cut expenses drastically I can use the money to get rid of the monthly payments. Or not: in a real emergency, I’ll have the choice of using some or all of the cash for survival.

If I had to do that and I were really in desperation gear, that 9.26 months’ of my current net income would go much further: it would support me for well over a year. Remember, that’s not counting freelance income and whatever part-time teaching I can scrounge from the community colleges. It doesn’t count Social Security, and it doesn’t count the $17,000 the state owes me for back sick leave, or the month’s worth of accrued vacation time for which the state will owe me.

So. Un-American though it may be, frugality has saved this worker’s little tail. If I’m laid off within the next few weeks or months, a threat that again looks very credible, I have a safety net that will keep me from falling to the ground and breaking into a million little sherds—because I’ve been living within my means. Well within my means: I’ve been spending enough less than I earn to stash a substantial amount of beat-back-the-wolf cash in savings.

Call me unpatriotic and call me naïve. But I still think this is not a bad thing. I still think if most Americans understood what simple frugality means—and that it does not mean living like Scrooge McDuck—we would all be in a lot better shape.

Well…all of us except a few zillionaires who took advantage of our late, great free-spending times.

McDuck portrait(link) by Carl Barks

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Chance January 19, 2009 at 2:23 am

Smart moves every one. I too have the layoff axe hanging directly over my head; so I am acting as if it has already happened and selling off clutter, stuff, looking for side income, and paying off debt as fast as I can. There isn’t any downside to this approach — if I don’t get laid off, I will be in much better finanacial shape. Fingers crossed for both of us, but transition planning is always a Good Thing.

elementaryfinance January 19, 2009 at 5:56 am

Great job! I just wrote a piece (linked here) about how to fund a savings account by finding the dollars here and there that you can or already are saving by getting coffee at home, using coupons, etc. You are right, we don’t know when the axe will fall on each of us. Hopefully never.

frugalscholar January 19, 2009 at 6:19 am

This is really inspiring. See the NYTimes article “How to Prepare Your Budget for Disaster”: http://www.nytimes.com/2009/01/17/your-money/17money.html?ref=your-money

It seems so wise to think all this through (and DO something) before disaster strikes. That way, when the layoff occurs, you have your emergency fund. If it doesn’t…well you still have your emergency fund.

Kristy January 19, 2009 at 6:08 pm

I don’t think it’s unpatriotic or naive to believe that we’re in this mess because we have a spending problem. I whole-heartedly agree. In fact, I think sometimes it takes drastic setbacks in order to make people learn what they need to learn. Sometimes we learn the easy way and sometimes the hard way. In any event, I think you’ve done a terrific job with your safety-net and I wish my clients at the credit union I work for took it as seriously as you do. I hope you don’t get the axe, but if you do, it’s got to be a good feeling to know that you’ll be alright. You’ll make it through. Best of luck to you!

SimplyForties January 20, 2009 at 4:55 pm

What a relief that accounting must have been for you! Hopefully you’ll weather this next layoff storm as well as the last and your savings will continue to accumulate.

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