Coffee heat rising

Budgeting

w00t! Budget success!!!

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The American Express bill  arrived today. Hot dang! Just a little over $1,000!!

That’s within easy shooting distance of the $1,000/month post-Canning Day figure I’ve set for total discretionary spending (i.e., all costs that are not recurring monthly bills), and it’s well below my current $1,200/month budget.

And that’s without even trying very hard!

Last month’s success included a $97 bill for pool repair, a $50 trip to Home Depot, and a $25 junket to Lowe’s. Plus the $30 flu shot that GDU’s cockamamie insurance wouldn’t cover. Criminey, I even went to Whole Foods in this billing cycle!

So pretty clearly, even at the $1,000 target, there’s room for some play.

This month I’ve been consciously aiming for the $1,000 budget—last month, I had in mind $1,200 as the spending limit. So far, I’m in the black overall…but we’re only a week into the budget cycle, and I’ve spent about $60 more than planned for that first week. But catching up should be fairly easy: I’ve got all the food in the house I need, probably won’t have to buy gas for another week…uh oh.

Nooo… I take that back: the plumber’s coming over this morning. Day-umn! Bathtub drain is clogged. That’ll be a hundred bucks.

Okay…so I’m about to be about $160 over budget for the first week of this month’s budget cycle. That just means I’ll have to stay out of grocery stores next week. Not a very tall order, since the freezer is so full I can barely close the lid.

So, what’s the explanation for this little flicker of budgetary joy? A couple of things:

1. Mindset. I just made up my mind that I was going to spend less. Somehow, like making up your mind that you’re going to eat less and eat better to lose weight, that seems to set you on the right track.

2. Keeping track of every expense, to the penny. I keep an Excel spreadsheet in which I subtract expenditures from the amount budgeted for each billing cycle.

3. Strategizing shopping trips. I made three Costco runs and three trips to Safeway, each time with lists in hand. All were scheduled shopping trips, not serendipitous drop-ins on the way home from work. During the month, then, I had three shopping days, and on those days I went to Costco, Safeway, AJ’s, Trader Joe’s (once), and Whole Paycheck (once). Because I bought only what I’d planned to buy, costs at each of these emporia were kept under control.

4. Staying out of stores! Other than the grocers’ (if Costco can exactly be called a “grocery”), the only other stores I went into last month were Lowe’s and Home Depot, and the only reason I went to the Depot was that Lowe’s didn’t have everything I needed.

5. Not getting discouraged. Several times in the past few months, I’ve thought there’s no way in He** I can possibly get monthly expenditures down to $1,200. Then when I realized even that was too high, I thought I was doomed! But lo! Here we are closing in on Canning Day, and spending is getting right down to where it needs to be.

Don’t give up! You can meet your goal if you keep at it.

With my share of the Downtown House mortgage coming out of a tax-free draw from a whole life policy, if “non-regular” spending stays at $1,000, my bare-minimum costs next year will come to $27,672. They’re that high because the cost of Medicare will be many times what I’m paying now for health insurance. Though I think my projection is accurate, I may be overestimating the total Medicare cost by as much as $100 a month. If that’s true, then I might get by on $26,472. My projected net from teaching and Social Security alone will be $26,453. Not quite enough to cover costs, but it doesn’t count the $2,000 I can pull down as a dividend from the S-corporation or the $3,960 in projected net vacation pay. In 2010, total net income should outpace total costs by at least $2,600.

The year 2011 will have to take care of itself. And it probably will.

How dumping your credit cards can keep you on budget…

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…even if you’re a credit-card “deadbeat” who pays off all charges in full every month.

As I was saying yesterday, if and when my credit-card issuers try to sock me with annual fees just for carrying their plastic around in my purse, the cards will go away. Substituting cash, purchasing cards, and checks for credit cards will, on the surface, add an extra layer of complication to my bookkeeping: I’ll have to go to Costco and Safeway to buy the purchasing cards, and I’ll have to keep track of amounts spent with each of these spending tools.

Or so it seems.

In fact, though, I think a credit-card-free system might be no less involved to track than what I’m doing now: budgeting $1,200 (down from $1,500 after the furlough; an amount that will drop to $1,000 when my job ends) for all expenses other than monthly recurring charges (such as utilities), and staying on budget by trying to spend no more than 25% of that amount in any given week. To make this work, I have to enter each week’s bills against the week’s microbudget, a recurring Excel tedium.

Allocating a specific amount of monthly income to each of the three tools would work much like the “cash envelope” system favored by many frugalists. The idea is that you set aside a specific amount for each category in your budget—in cash, physically in an envelope—and when an envelope runs out of dollars, you have to stop spending on that category until you get more money. The psychological message is You’re out of money!!! Stop spending!

Well. A purchasing card with X amount of money on it is effectively the same thing as an envelope of cash. Run out of money—quit spending until you have more money. You could, in theory, regard the other two tools in exactly the same light: cash is easy; checks would be simple if you kept only enough money in your checking account to cover your monthly check-writing budget.

My plan is to have one purchasing card from Costco and one from Safeway, the merchants where I buy most of my food and household goods. Then to pay in cash for meals out, entertainment, and small incidentals, and to cover all other more-or-less discretionary expenses (such as house and pool maintenance, clothing, etc.) with checks.

In a way, this plan would be simpler than my present scheme. Instead of balancing all these expenses out of one “envelope” (the credit-card budget), each category would be strictly finite, and spending would have to stop when a given month’s limit was reached.

Right now I spend about $425 a month at Costco, about $68 a month for Costco gas (by far the cheapest source of gas in town), and about $80 a month at Safeway. Averaged out over the past nine months, I’ve spent about $48 a month on clothes at emporia other than Costco, my favorite purveyor of jeans and knit shirts; about $20 a month on haircuts; and about $68 a month on all pool care, including repair bills. Some of those costs aren’t going away after the job ends: I have to buy gas, for example. Others don’t happen every month—I get my hair styled about once every two months, and repairs on the pool happen only a couple times a year. Money set aside monthly for those categories would accrue until a need arose.

Regarded in this way, my base costs actually come to less than $1,000 a month:

Current predictable expenditures come to almost $870 a month. In the new, ascetic regime, regular expenditures (above and beyond monthly recurring costs such as utilities) will drop to around $815 or $820. Distributing these expenses among several payment tools, some of which (such as payment cards) are finite, might force me to stay within this restricted budget.

As a practical matter, of course other expenses will arise: veterinary bills and medical copays, for example, and the unending repair bills on the house. But those will just have to be paid from emergency savings, since Social Security plus teaching income won’t provide enough cash flow to cover such costs.

And also as a practical matter, some of these costs don’t happen every month: I rarely go out to eat, and when I do I certainly don’t spend fifty bucks. I don’t buy clothes often, and in any event, I obviously will have to cut expenditures there—I can’t afford to spend $600 a year on clothing.

I suppose I could take out the $190 a month—the amount to be spent by checks—for a total finite cash budget of $260. But I really dislike carrying cash around. It only took one theft from my purse to demonstrate that carrying cash is a fair way to lose it. That and the fact that cash runs through my fingers like water have always been my objection to the much-ballyhooed envelope system.

It’s an obvious idea: abandon the single, amorphous monthly credit-card budget and allocate costs to finite, tightly defined “envelopes” to be used for specific costs might limit total expenditures. The question is, with less flexibility can one stick to these straitened categories over time?

Borrowing Trouble: Planning for a government shutdown

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I know it’s borrowing trouble and there’s no point in thinking about this, but being a little funny about  money I can’t help laying out some plans in the face of the possible shutdown of my employer, the Arizona state government. It will happen this week if our craven legislature can’t quit playing political games by tomorrow.

After going through the credit union accounts, I see I have a substantial amount of unused cash laying around, enough to stave off having to raid retirement savings for a little over five months.  Monthly savings, which doubles as an emergency fund and a source of cash for indulgences, currently has $10,578. Of that, $2,500 is set aside to cover COBRA between the Canning Date and my 65th birthday, when I’ll be eligible for Medicare, and another $1,200 is earmarked for my car’s 90,000 mile service, which needs to be done very soon.

There are cushions of $663 in the account that holds money budgeted for charge card expenses, $1,635 for regular monthly expenses (such as utilities), and $4,891 in the “pool” from which funds are drawn for the savings, charge card, and recurring expense piggybanks. All told, available savings plus the cushions come to $14,067. My regular expenses, especially at this time of year when utility bills are astronomical, run about $2471. Assuming I’ll have to go onto COBRA, adding another $170 a month to costs if Arizona employees can get the stimulus discount, that’s enough to sustain me for 5.32 months.

Problem is, this is all money I figured I would fall back on when the university cans me in December. Every extra dollar I have to use now is a dollar I won’t have when I’m permanently unemployed retired. Because I won’t have enough to make ends meet during the months when I’m not teaching part-time at the community college (that will be about four months out of every twelve), I will need that money to survive. The suffering may be deferred, but it will come.

Every unpaid day is $82.36 I’ll have to raid from savings to live on now instead of after I’m unemployed—assuming no major expenses arise. It’s $97.86 of take-home pay that disappears from my wallet.

(Kind of shocking to realize how little I earn, isn’t it?)

Clearly, even with my minimalist income I can get by for a few days. But they’re talking about closing down state government for as long as 30 days. If this absurdity continues for a week or more, my boat is going to start to take on water.

If our august leaders don’t get their act together by tomorrow afternoon, I’ll need to take the following steps:

• Cancel all automatic transfers and electronic payments to creditors
• Stop charging day-to-day expenses
• Obtain enough cash to get by for a week or so, and pay expenses in cash only
• Pay off the amount I’ve charged on AMEX so far in this billing cycle

Two of these—canceling EFTs and withdrawing cash for living expenses—will need to be done quickly, because the credit union branches within driving distance occupy buildings on the university campuses. If the university closes its buildings, obviously the credit union will have to close those branches. From what I can gather, if the budget isn’t passed on Tuesday, most government entities will close on Thursday. So that gives one day to fly to the credit union, where the lines no doubt will go out the door.

How much longer, Lord, before we can vote these clowns out of office? Can an entire legislature be impeached?

Image: Staplegunther, Arizona State Flag
Public domain; Wikipedia Commons

Microbudgeting: A new refinement

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Expense after crazy expense keeps pouring in. I’m having a heck of a time staying on budget, not good during the summer when power and water costs run very high. My microbudgeting scheme, whereby I break a month’s budget into four roughly week-long periods, is feeling the strain. The ticket for blowing through a photo-speed trap at 45 mph on a seven-lane highway threatened to break the camel’s back. Faced with a week without enough cash left to buy groceries, I came up with a little strategy that may represent a real, permanent refinement on the microbudget.

Each month-long budget represents an American Express cycle, since I charge almost all my expenses and then pay off the bill at the end of the month. Dedicating $1,200 to cover all costs except regularly recurring monthly bills such as utilities, I allocate $300 to each of four “weeks” within each monthly cycle. If I can stay in the black for all four of these microbudgets, bully for me. If not, I can see at a glance when I’m slipping into the red and put the brakes on before it’s too late. Thus if I overspend in one week and underspend by the same amount or more the following week, I stay on budget without having to pinch pennies for the entire remainder of the month.

Last month I ran up a series of expenses, some of them unexpected: the chair from Pier One, the gutter installation, a forgotten air-conditioning bill, the surprise Costco membership renewal, the pool repair bill, the cost of three locksmith visits after the painter couldn’t figure out how to get the lock off the door he was refinishing, the speed trap ticket, and, more recently, the cost of the bargain landscaping bricks. Last month I ran $253 dollars over budget, and that was without the speed trap ticket, which got charged against this month’s AMEX bill. It was also after The Copyeditor’s Desk reimbursed me over $800 for costs related to the business.

Charging the $188 speed trap gotcha against the first week of this week’s $300 microbudget wouldn’t leave enough to buy gasoline and groceries. Even riding the train to campus, I can’t do without gas: I have to drive to the train stop. And by the end of last month, I needed to replenish the larder.

It occurred to me that if I divided the speed trap ticket by four and spread the cost over the month’s four microbudgets, it might leave enough in each week to buy necessities. The effect is to cut each microbudget by a relatively small amount but leave plenty to live on in each week.

In theory, it should work. In practice, the cost of the bricks (which included $18.68 worth of sales tax) overran the first week’s microbudget by $206.16. However, when that amount is subtracted from this week’s cycle, I’m still left $46.84 in the black.

Forty-six bucks will be enough to buy my lunch and my exiting RA’s (at our office, the boss traditionally buys lunch for an employee who’s leaving…and the university doesn’t reimburse any expenses related to food). Since I restocked food and filled the gas tank last week, I shouldn’t have to buy anything else this week. That will leave $253 to diddle away next week.

What happens if you spread all extraordinary costs over the month, instead of just a single unexpected large bill?

If I divided the $243.68 bill for the bricks in four, to get $60.92, and subtracted that amount from each week’s microbudget, the result would look like this:

The result is much more positive psychologically: now I’m only $23 in the red at the end of the first week, and instead of barely enough to get by in the second week, I’m left with a relatively generous $168 budget.

Is this a more realistic way of looking at monthly spending? It may be. It’s telling us that there’s plenty left for this month in spite of two extraordinary expenses. On the other hand, knowing that might lead the budgeter to relax her spending habits, which really could run the overall budget into the red.

Planning for layoff-induced “retirement”

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In a moment of lucidity, I realized that of course if my basic survival account is padded with a five- or ten thousand-dollar cushion, what will matter in “retirement” is not month-by-month income (earnings will fluctuate wildly because teaching money will come only in spring and fall), but how much I will earn on average. That is, after the layoff, I won’t be living on bimonthly paychecks. I’ll be living on a fund of money that is restocked once a month from a variety of sources. 

When income from these sources runs low, I’ll have to use some of the cushion to live on. But when income rises while community college classes are in session, the cushion should be replenished, assuming my average costs don’t overrun average income.

Thinking about this the other day, I realized to my amazement that—any way you look at it!—my income in forced retirement will be higher than my salary. Unfortunately, the changed circumstances of retirement will make that irrelevant, because costs will rise significantly. However…there it is.

When GDU is paying my full salary, the net is $3,044. The pay cut created by two furlough days a month has reduced my take-home pay to $2,836.

My financial advisor says that with a 5 percent drawdown, my savings will last 100 years. At 7% the money would last 50 years. A 5 percent drawdown plus Social Security plus teaching income should create a net of $3,288, assuming the total tax gouge is around 20 percent. 

This looks wonderful, eh? Well…not so fast.

Even though my net monthly expenses will drop because I’ve paid off the second mortgage on my house and because I will cash in the whole life insurance policy as soon as this tax year ends, it still won’t be enough.

Right now I’m paying my share of the mortgage on the downtown house with a small drawdown from my largest IRA. In other words, I’m not paying the mortgage out of my salary. That cost will have to be folded in to the 5 percent survival drawdown—in fake “retirement,” I will have to help pay the mortgage out of money I would ordinarily use to live on.

Even that would be manageable…except for Medicare.

Medicare, Medicare Part D, and Medigap insurance will cost twelve times what I’m paying for health insurance now! And that will run my average costs over $3,288 a month.

Freelance income might take up the slack, but it’s so sporadic and so unreliable, I’m not including it as a source of average monthly income. As we’ve seen, the likelihood that I can keep my credit card charges down to $1,200 is slim, and so overruns of this tight little budget are probable and may be frequent. All it will take is one vet bill or one repair bill to run the thing deep into the red.

It looks like I’ll be forced to take a 6 percent drawdown, even though I don’t want to and even though I think it’s highly ill-advised.

One pool repair bill runs upwards of $115. You can’t walk into the vet’s office for less than $100. A pair of glasses costs $300. As you can see, then, at 6 percent I’ll get by…but it’ll be tight. Very, very tight. 

Probably some freelance money will continue to flow in, maybe as much as two or three hundred dollars a month. whoop-de-doo!

Yesterday I dropped by the college, where the departmental chairman was hanging out with the secretary. They said not to worry about enrollments: because the college nullifies unpaid early enrollments and community college students are just as broke as the rest of us, most people wait until the week before classes start to sign up for classes. The chair was confident all three classes would make, but, he said, even if they don’t, he still has several unstaffed sections. He said he was sure I would end up, willy-nilly, with three sections. 

So that will help to fill up the fund that I’ll be living on after December.

And it’s pretty clear there’ll be no problem landing three sections a semester as long as I can dodder onto a college campus. GDU has so massively shot itself in the foot—in both feet!—by jacking up tuition, adding a per-credit surcharge to the inflated tuition, and by generally mistreating students that vast numbers of students who would qualify to get into the university are going to the community colleges for their first two years. 

It will be a very long time before the university recovers from its own missteps and from our right-wing legislators’ fierce, vengeful animosity toward higher education, set loose by the departure of Governor Janet Napolitano, who was able to keep the kookocracy under control to some degree. The universities in this state, especially GDU, have been permanently damaged by the crash of the Bush economy and actions of the surviving extremists in our elected offices.

It’s too bad—a disaster, really, for our state—but on a selfish, personal level…what redounds to the junior colleges’ benefit may redound to mine.

Projected cash flow at 5% drawdown
Projected cash flow at 5% drawdown; red = outgo

Budget shattered

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Wow! After the speed trap ticket, the gutter installation, the unexpected pool repair, the purchase of three pair of $14 shorts (what an extravagance!), the two service calls from the locksmith to remove and reinstall the complicated lock so the painter could refinish the door, and the unplanned lock repair, I’ve overrun this month’s credit-card budget by an astonishing $747.99. 

No, wait; that doesn’t even count the speed trap rip-off. As it develops, the traffic school doesn’t charge the $188 gouge to your credit card until it receives a signed piece of paper from you. This month’s AMEX cycle ends on the 20th, and so if I delay mailing that thing another couple of days, the charge will go on next month’s bill. 

Fortunately, The Copyeditor’s Desk, Inc. owes $608 of this, for hosting, computer supplies, incorporation costs, and the solid-core door and hardened lock I put on the office. Having received several payments from clients, the little corporation actually has that much to spare. Even more fortunately, because I’ve come in under budget for three of the past four months, plenty of “extra” money has collected in the account that I use to pay credit-card bills. I hate to have it go away, because I was counting it as part of the savings that I hope will ease the transition to permanent unemployment. And pushing the speed trap rip-off forward means I start next month $188 in the hole.

Oh well. At least right this minute there’s enough to pay this month’s bill.

😯