Coffee heat rising

Budgeting

The Summer of Murphy’s Law

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Going into this summer, the longest period I’ve ever faced without enough income to make ends meet, a thought entered my little pea brain:

If anything can go wrong, this is the time it will go wrong. Expensively wrong.

It’s Funny’s Corollary to Murphy’s Law: If anything can go wrong, it will always go wrong at the worst possible moment.

Now it can be reported: Murphy’s Law is a true law of Nature, and Funny’s Corollary is dead right. I don’t think I’ve ever had such a long series of expensive fiascos and missteps, all of them happening when there’s not enough cash flowing in to cover my ordinary expenses, much less unplanned-for costs.

Check it out:

Holy mackerel! Over $2000 in little surprises and extravagances! Income for a whole month was only $1,475. Unplanned expenses occurring over the three months of Penury Summer amounted to more than a month’s worth of summer income.

Granted, a few of these things—the clothing, the gas grill, the vacuum cleaner—were covered by savings. The palm tree trimming misery came out of cash flow. But all the rest of it: one nasty little surprise after another.

Entertainingly enough, the $1,475 monthly summer income in the absence of teaching is $565 less than normal, ordinary budgeted expenses.

Well, it’s a good thing I had a substantial emergency fund. Two funds, actually: $2,000± of ordinary diddle-it-away savings, plus the original $14,500 that I’d accrued by the time unemployment struck. The diddle-it-away savings accrue with a monthly contribution from cash flow, and it usually will cover modest wants and needs. The grill is not what I would describe as “modest,” but it did turn out to be a good buy.

So far I haven’t had to dip into the savings set aside for a real catastrophe. It’s close, though: At the moment I have $225 in the credit-card budget to last me until September 20 and $664 in cash to last till September 30. I don’t get paid until September 15, and I have no idea how much that paycheck will be. Those morons at Fidelity screwed up the August drawdown, so that’s $385 disappeared into the ether. If or when that will rematerialize, I don’t know.

To put the frosting on the cake, Wellcare, the privatized provider of Medicare Part B, has screwed up its billing and is demanding that I pay twice for this month’s premium, which I’ve already paid. Call to inquire and you get somebody with a Bangladeshi accent telling you their computer system is down so she has no idea what to say about it, and asking you to call back at 10:00 at night. Why the righties want to hand over all of Medicare to those sleazy insurance corporations beats me!

More huge bills are pending. The power bill this month is going to be astonishing: August’s heat and humidity had the AC unit pounding away almost nonstop, in spite of my setting the thermostat at 85 degrees during the daytime. Water bills are always high in the summer, although the unusually wet summer meant I didn’t have to add a lot of extra water to the regular drip watering schedule.

The college has not paid me the second part of the stipend owed for developing the online magazine writing course. This appears to have happened because no one has reported to the dean that I completed jumping through all the required hoops. Paradoxically, it’s a good thing.

Yes. Getting shorted on money earned is good. Why? Because Social Security is poised to shaft me big time. That stipend, if it’s ever paid in full, will put me $240 over the 2010 Social Security earnings limit of $14,160. As a result, Social Security will confiscate an entire month’s benefit check: $1,275. And make me come up with $111 out of pocket to pay for Medicare Part B. So the punishment for earning $240 “too much” is a fine of $1,275.

The fact is, if the school forgets to pay the rest of the stipend, I’ll be better off, even though I will have to take money out of the S-corporation to survive. If Social Security shorts me $1,275 this fall, then I’ll be forced to dip into my catastrophic emergency fund, just to buy groceries.

Things will be extremely tight this fall. Because I’m only teaching one class per eight-week session, total monthly income will be just $100 more than budgeted expenses…assuming I’m estimating my projected paychecks correctly, which is not a safe assumption. Expenses will start to go down in October when the weather cools a bit, but September’s utility bills will max out my $2,040 budget, and October’s will come close.

Sure do hope I can get a fistful of teaching assignments next spring, when at last I’ll be free of Social Security’s enforced poverty. I’ll need to teach three-and-three in both semesters and try to pick up at least one summer course. Or another stipend for developing an online course…

And I now have a plan for surviving next summer. This fall, with teaching income piddling in, I’ve had the state’s Fidelity plan cut my distribution to the minimum required to keep my RASL payments: that’s one buck, or 77 cents after tax. Down from $500. That will save $6,000 of the $11,000 I left in that account to cover me until the last RASL payment is disbursed in 2011. If I were to take $3,000 of that money out next summer, it would still preserve some capital but it would provide the equivalent of a monthly net from teaching three sections! And that would be plenty for me to live on.

If I can get one course next summer, it even would provide enough to take a vacation!!!!!

Wow. I haven’t been on a vacation in eight or ten years. That would be cool. Literally…you can be sure it’d be far away from this place!

CLICK! Why didn’t I think of this one before?

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LightBulb

Ever have one of those “CLICK” moments, when the light switch snaps on and the brain floods with Insight? They always seem to occur belatedly.

It recently dawned on me, as I was thinking of something other than how I’m going to get by during these summers of unpaid work, that an obvious source of summer funding is sitting right out there in plain view.

For a retired state employee to collect the many thousands of dollars owed for unused sick leave (“RASL”), she or he has to be taking a drawdown from accrued retirement savings—i.e., from the state pension fund or from the 403(b), whichever plan applies—over the three-year period in which the RASL money is paid out. By the time my job terminated, I’d never heard a straight story about how much or how little that drawdown had to be. So, in the absence of any credible facts, I decided to make it $500 a month—amounting to a $389 net.

That was more than I wanted to take out, given the goal of waiting till the stock market recovers some of the $180,000 lost from my savings, but not anything like 4 percent of total retirement savings. So…what the heck.

Time has passed. In that interim, I learned that the drawdown can be anything. Even, say, one dollar a month. That revelation was made by a guy at Fidelity not long before the end of spring semester. Since I didn’t think I could get by on Social Security and bankbook savings alone during the three months summer of full unemployment, I decided to delay cutting the drawdown until September, when a little teaching pay will start dribbling in again. Good thing—without the $389/month net drawdown, by now I’d be deep into the emergency fund. With it, I’m still in the black and, barring another unexpected repair bill, should stay that way until pay starts again in the fall.

But the black ink flows by dint of penny-pinching. And you know what? I’m tired of it. I was pinching pennies through the spring semester, so tightening the belt over the summer means real Scrooge tactics. As I write this, it’s 85 in my study and 90 degrees in the kitchen; the power bill for this month still may break the piggybank. Over at La Maya’s house, whence I just came, it’s cool and comfortable indoors. It really would be nice if my house could be so cool that the dog and I can breathe without panting. And it would be mighty nice not to have a $300 repair bill represent a minor catastrophe.

So. What we have here is 12 months of drawdown, of which 9 months are redundant. When I cut the drawdown to $1 a month in September and leave it that way until May, what will happen is $4,500  of tax-deferred savings won’t be spent. It’s money that I originally figured would have to be spent, so in a way we could regard it as usable dollars. The plan here is to draw a buck a month during the academic year and $500 a month ($389 net) in the summer.

What if instead I drew enough down in the summer to create a net of $1,000 a month? That would require a gross withdrawal from the 403(b) of $1,300 a month.

I’m already going to withdraw $500/month in the summer of 2011. To make it $1,300, I would have to take out an additional $800/month.

$800 x 3 = $,2400

But over the nine months of 2010–11 that I take effectively nothing out of the GDU retirement account, $4,500 of “spent” money will not get spent.

$4,500 – $2,400 = $2,100 to the good

In other words, although I won’t preserve all of that $4,500 saved by cutting the drawdown to $1, I’ll still be $2,100 further ahead than I would be if I continue the present $500/month drawdown until all the RASL payments are disbursed in February 2012.

Meanwhile, during the summer months, the $1,000 net drawdown added to the $975 net Social Security payment would yield $1,975 a month to live on.

That’s $575 less than came in while I was teaching three sections, but still one heckuva lot better than the $1,364 I’m trying to get by on now, during the costliest season of the year.

$ 1975 – 1240  nondiscretionary expenses – 800 discretionary costs = –$65

Not great, but better than I’m doing now.

Of course, the only reason I’m getting by this summer is that last semester the $389 net drawdown plus the $1,574/month net teaching pay added to the Social Security left a little money in the checking account at the end of each month. Enough had accrued over four months of frugal living to almost support me while nothing but Social Security and the piddling drawdown comes in over the summer. However, I’d only be running $65 in the red, or $195 for the entire summer. It’s very likely that $195 will be left over at the end of nine months, even with the drawdown cut to a dollar a month.

How likely is it?

By the time the spring semester ended, I was about $2,500 in the black. Subtract $389 a month from that: $2,500 – ($389 · 4) = $944. Prorate that amount over the 2011 summer months to get about $315 a month. In fact, by $2011, there should be twice that much, because the monthly accrual will have occurred over two semesters, rather than this year’s single semester of earnings. $315 x 2 = $630 a month in savings for summer survival.

$  630  left from living frugally over 9 months
+1,000  summertime net drawdown
+   975 net Social Security
$2,605 net summer funding
– 1240 nondiscretionary expenses
–  800 discretionary expenses
$565 theoretically left each month

How can I count the ways I doubt that? Nevertheless, even if this estimate is two or three times too generous, I could afford to run the air conditioning! And without having to try to keep discretionary expenses to $500!!

Matter of fact, with $565 a month left over, I could afford to go someplace to get out of this unholy heat for awhile! In theory, that would amount to $1,695 of summer vacation money. Holy mackerel! That would put me up in Santa Fe for almost a week!

Assuming I take my shopping cart and sleep under a freeway overpass…

Speaking of the scheme to cut the $800/month discretionary budget to $500 over the summer, that one didn’t work. The $300 air-conditioning repair pushed the June-July expenses for that budget cycle, which ended yesterday, right back up to $800. In fact, I spent about $12 more than $800.

It could have come out of monthly diddle-it-away savings. However,

a) that comes under the heading of robbing Peter to pay Paul; and
b) I’m trying to revive that savings account, which was much impoverished by the clothing spree and the glasses fling. It will take another three months to recover from those spending frenzies.

So, I decided to cover the AC repair bill with cash flow. {sigh}

Pretty clearly, it’s unrealistic to think I can cover discretionary expenses on $5o0 a month. Most months I don’t spend $800, but on average since January I’ve come in only $42 under budget. To get day-to-day costs down to $500 a month, I’d have to stop eating.

And it must be said: not living like an anchorite would make a 112-degree day a lot more tolerable.

Hot and Muggy!

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Sun-limb-flare

Well, the power and water bills showed up at once yesterday. Not too bad: the electric was only $176.63 The water came in a dollar over budget at $126.42, but at least it didn’t out-zing than the power bill, as it did last month.

When it gets to be over 100 degrees, you have to water the potted plants every day. The roses, of which I have way too many, also need to be watered several times a week. And ohhh yeah: yesterday’s water bill also reflects the day I forgot and left the water running in the pool! Dumb tax!

So far, we’ve had a pretty temperate summer…only one 115-degree day. Now, though, we’re headed into monsoon season. At 5:30 this morning it was 90 degrees out there, and overcast. The air conditioning was roaring away when I awoke…had to jack it up to 85 to settle it down. Yuck. It’s hot and wet outdoors. This is the only really uncomfortable season in Arizona, and it will last through to the end of August.

That means the really big power bill is yet to come. The $175 is for June, a relatively cool month. The 115-degree day, when the A.C. thumped along alllll daayyyyyy long almost without stopping, occurred in July. The bill for that (and for most of the really hot and humid days) won’t come until next month. The past few days have seen the shaded back-porch thermometer at 110, and the unit has been running pretty much continuously all day long, except in the morning, when I shut it off until I can’t stand the heat any longer.

By comparison, last July’s power bill was $165.78, ten bucks less than this month’s gouge. Salt River Project, our power provider, has jacked up its rates. I forget exactly how much they managed to wangle out of the corporation commission. They tried to get an increase of 8.8%, but as I recall they dropped it, in the face of shrieks from customers, to 4.9%. That would’ve raised this year’s July bill to $174. Since I’ve kept the temps around 85 during the day—it has to go down to 78 or 80 at  night, or I can’t sleep at all—that means that even at uncomfortable temps the power bill continues to move toward unaffordable.

There’s no way to compare the water bill with last year’s, because the City of Phoenix screwed up the billing by canceling my service when someone gave them the wrong address to close out their own service. In July 2008, I had a $127 water bill. I wouldn’t be surprised but what the actual bill in 2010 was somewhere near that. In January the City also jacked up its rates, by 7.2% (!). I expect the fact that this month’s bill didn’t rise to $136, even after I almost overflowed the pool one fine day, reflects the savings realized from cutting down the endlessly thirsty, moribund ash tree.

Despite my intermittent bitching about it, the pool has earned its keep this year.

Earlier this season, I discovered that ten or fifteen minutes of paddling around in the pool really made the sore arm feel better. A lot better. So lately I’ve been setting the kitchen timer to go off every two hours, to force myself to get up off my duff and drop into the pool. While the injury is not healed and probably never will fully heal, it certainly is much improved. At least I’m not waking up in acute pain every morning, and I can now move the arm into most positions where it needs to go without too sharp a jab.

This has led me to rediscover what I’d long ago forgotten: the way I managed to  keep the power bills down in the gigantic, leaky house my ex- and I occupied was by staying wet all day. I used to shut off the AC the minute the man walked out of the house, and it would stay off until around 5:00 p.m.; because he got home around 6:30, the house would be cool by the time he came in from work. This was tolerable for me because I would run out to the pool about once an hour. In those days, I wore a swim suit and my hair hung down to my shoulders, and so my clothes and hair were damp almost all the time.

And that’s how you survive two months of 110-degree weather without bankrupting yourself. 😉

Image: Filamentary plasma in the sun’s chromosphere. NASA. Public domain.

How Do You Organize Your Budgeting?

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Here’s the question: Is it better to mound up your spending money in one big pile, or does it make more sense to divide it into “piggybanks” dedicated to one purpose or another? Is it an overcomplication to dedicate x or y amount to, say, groceries or eating out? Wouldn’t it be simpler to give yourself a set amount of money to spend for a given period, and not obsess over how it’s spent?

In the envelope system, for example, you convert your month’s income to cash and literally stuff chunks of it into various paper envelopes—this much for groceries, this much for gasoline, this much for entertainment, and the like. When you run out of cash in a given envelope, you quit spending on that category until you get another paycheck.

Many of us do this in a virtual environment. A program like Excel makes it easy. I certainly do: my discretionary budget allocates specific amounts to various categories such as groceries, gasoline, etc.

Click for a larger view

The greyed-out figures are charges and returns that have been posted in the “Left from $500” column.

The nondiscretionary budget does the same, only in a different format because I have little choice over how much will be spent:

In this case, the greyed-out figures represent bills that have yet to arrive. The $130 I’ll have to spend this morning on getting the hated palm trees trimmed will come out of last month’s black ink. Next month there won’t be any residual black ink: power and water probably will exceed the budget. But that’s neither here nor there. The issue is…

Discretionary budget? Nondiscretionary budget? The first contains 11 items. The second contains 10. That’s 21 items I’m tracking in two subbudgets. But in any given month, a specific amount of cash is available for spending—in the summertime it’s $1,745. Does it really matter where the money is spent, as long as no more than $1,745 goes out the door?

Sometimes I think the business of tracking ever penny that’s spent on this or that category is just obsessive. Personally, I worry that if I don’t keep a grip on expenditures, at the end of the month there won’t be enough to buy groceries or pay the utility bills.

But maybe that’s wrong. Maybe it would be simpler (and saner?) to regard the $1,745 as one big pile of dough from which little bread loaves are baked when needed. If instead you planned that all extraordinary expenses—anything other than recurring bills and bare subsistence—would be covered by savings and then stopped worrying about what you spent in any given category, would you be at any more risk of running out of money at the end of the month?

We know that last January J.D. over at Get Rich Slowly stopped tracking his spending altogether. The roof apparently hasn’t fallen in on him, because he’s still posting to his blog (unless he’s posting on his iPhone from debtor’s prison).* He compares the practice of tracking each transaction, which he had long advocated, to training wheels, and suggests that after habits of mindful spending become engrained, it’s no longer necessary to track every single penny.

I’m none too sure about that. In the first place, there  have been a few times when a transaction came into question, and it sure was handy to be able to search a year’s records and find it instantly. And on occasion, various store clerks, managers, and bureaucrats have been mightily surprised when I came forth with a three- or four-month-old receipt. And third, sometimes it’s useful and convenient to be able to see at a glance how much I’ve spent and how much is left.

My thought is nowhere near as daring as JD’s. Rather than quit tracking altogether, I suggest that there may be no real reason to detail budgeting and spending. Maybe just establishing a puddle of money and staying aware of what you’ve spent overall, on everything, compared to the amount available, would suffice.

Is it enough for you simply to know you have $x,xxx this month to spend? Or do you want your budget organized into categories and subcategories?

__________

* Update: As a matter of fact, more recently J.D. decided the better part of valor is keeping track of every penny, after all.

Revise That Budget!

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Summertime, and the living is…darned scary! With no real steady pay flowing from the community college into the money bin, I get nervous, even when I know very well that the vast emergency fund sitting in the credit union will cover a full year’s worth of expenses. To start with, I don’t want to use the emergency fund for day-to-day expenses, and to end with, I’d really like to stay within the $5,739 budget (Social Security + Fidelity drawdown + leftover money from the low-cost winter months) I figure will cover me during the long, hungry summer. To do that, I see I’m going to have to revise my budget…mightily downward.

There’s not a thing I can do about the $1,240/month nondiscretionary budget: the utility bills aren’t going away, and they can’t go unpaid. And while during the winter costs came in way under that budget because utilities were low, this summer they probably will bust the budget. The highest bills will hit in August, when payment for July water and electric use comes due; I expect those costs to exceed the $125 and $225 I’ve budgeted for them, respectively. Last August I had a $257 power bill, and the utility company is socking us with an 8%+ increase this year.

The only part of the budget with any give at all is for nondiscretionary spending: food, household expenses, clothing, vet bills, dental bills, gasoline, yard and house repairs, and everything else.

After I was laid off, I cut that budget from $1,500 to $800 a month. So far, so good: since Canning Day, I’ve managed to stay on track every month but May, when I had to pay for the glasses and the clothing extravaganza.

Now the plan is to cut discretionary spending from $800 to $500.

Fifty-seven hundred and thirty-nine dollars—the amount I have to see me through the summer—amounts to $1,830 a month when prorated over the whole summer. But $1,240 nondiscretionary costs plus $800 discretionary spending come to a total $2,040 in monthly spending: a $210/month shortfall.

So, I figure if I can cut $300 a month from the discretionary budget, there should be enough to get by until teaching income returns. Even if I don’t reach that goal—which I probably won’t, because it’s pretty extreme and because every time you’re short of money every damn thing in sight breaks and the dog gets sick—if I can come close, I’ll make it through the summer without eating very far into the emergency fund.

Wow! A $300-a-month budget cut! How do I plan to accomplish this?

• Cut back on food. The beans are already soaking in the slow cooker’s crock pot. I have some beef in the freezer, a fair amount of frozen fish and shellfish, a lifetime supply of pasta, a giant container of rice, and a stack of canned salmon in the pantry. I will need to buy some fresh produce and dairy, but otherwise I mostly can get by for a month or two by eating what’s on the shelves and in the freezer.

• Conserve gasoline. I’m trying not to use the car except on the once-weekly day I have to schlep to the campus to for a course preparation meeting. On that day, I’ll do grocery shopping and any other errands that are along the homeward trail.

• Buy nothing other than food unless it absolutely can’t be avoided. No clothes, no booze, no gardening stuff, no meals out, no electronic doodads, no movies, no nothin’.

• Find free ways to entertain myself. This includes hikes, long doggy walks, swimming, TV (broadcast, o’course) and freebie video downloads, and socializing with friends.

{sigh} It’ll be a challenge. That’s about the best I can say for it.

Beans-soaking

Return Policies: It pays to shop where they’re generous

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Yesterday, at Frugal Scholar‘s repeated urging, I returned to Costco’s optical department, bearing the goggle-like glasses I’ve disliked so vigorously. As you may recall, the progressives work adequately for watching TV (which I rarely do) and for eating dinner, but I can’t read sheet music for choir through them, or much of anything else; the “intermediate” pair the optometrist proposed to take the place of a pair of glasses that worked fine for reading and computing is more or less adequate for the computer but I can’t read a book or a newspaper through them.

The optician proposed to make a new pair of lenses for the progressives. Tentatively, I asked if there was any chance I could get my money back instead, since I’d had to buy another pair somewhere else.

“That’s your choice,” said she.

“Well,” said I, “I’d rather have my money back, if that’s possible, since these new glasses I had to buy were pretty expensive.”

Amazingly, she agreed to refund the entire cost. But it gets better!

“Is there any chance I could get my money back for the other pair, too, since I can’t read through them, either?”

To my astonishment, she agreed to that, too!

I walked away with $283.96 credited to my American Express card.

What’s staggering about this is not just that they returned my money for something they can’t resell. It’s that I bought these glasses LAST NOVEMBER!

Can you imagine? I still can’t, and I watched it happen.

This refund erased the $94 worth of red ink in this month’s budget and put me $151.46 in the black. I then bought $82 worth of groceries and household products. leaving me about $70 to the good.

Today is the 9th. I bought gas over the weekend, which, since I’m not driving around much, should run the car for another ten days. The grocery run provided enough food to last, probably, until the end of the budget cycle on the 20th. I may need a head of lettuce, but that’s sure not going to cost seventy bucks.

So. Despite overspending the budget this month, I come out unscathed.

It really does pay to shop at stores with generous return policies. With this sort of customer service, Costco has made such a fan of me that one little troll, gorged on troll kibble (I buy it at Costco, of course), decided that Funny must be a paid shill for Costco.

I wish. But they certainly have me coming back.

In contrast, I try to avoid shopping at stores that won’t let me bring back unsatisfactory items. I rarely go into Fry’s Electronics, for example. They have a one-month return period, and although they’ll eventually give you back your money,  in the past I’ve found it’s quite a hassle to engineer a refund. The useless vacuum cleaner, whose replacement is the main cause of this month’s budget overrun, was purchased there over a month ago and so can’t be returned. The new vacuum came from Costco. You can be sure I won’t be buying much from Fry’s again.

B’Gauze, one of the few stores that carries clothes that fit and don’t look just hideous on me, accepts no returns at all. Consequently, the $700 spent on the late great shopping spree went to J. Jill, not B’Gauze. Women’s clothing is weird stuff: it can look OK in the store, but when you get it home and look it over by the light of reality, you’ll find it doesn’t actually fit very well, or it’s shoddily made, or the red dye rubs off on your white pants. So when a clothing store refuses to take returns, it discourages one from shopping there. I never buy more than one or two items at a time from B’Gauze, and my trips to the store are few and far between.

Paradoxically, then, a generous return policy works as much to the store’s benefit as it does to the consumer’s.