It’s 115 degrees out there, and I’ve driven from pillar to post through it. First went over to GDU’s deferred compensation provider. Turns out this is a benefit available to government employees, which you can add to your 403(b) or state retirement plan, allowing you to shelter more of your money than the modest amount most states match. When the employer emits a piece of compensation that you’d like to defer, the employer has to withhold and pay FICA and Medicare. The guy I talked with said I could indeed defer payment of my $5,300 worth of vacation pay and the first payment toward the $19,000 GDU owes me for unpaid sick leave. However, he did not know whether deferring these chunks of compensation would protect me from having Social Security benefits docked in 2010, a buck for every two bucks of unapproved income.
So, it was off to the Social Security Administration, a hefty drive from the mid-town offices of the insurance company that handles the State of Arizona’s deferred compensation scheme.
There a Social Security CSR, the first person I’ve spoken to about this who seemed to know what he was talking about, said that even though FICA and Medicare are withheld by the employer, deferring the pay does cause Social Security to ignore it when figuring that year’s Social Security benefit.
Hallelujah!
This will allow me to teach as much as I need to without losing a large chunk of Social Security. It means I will not have to use the back vacation pay and the first installment of RASL (unpaid sick leave is paid out over three years) to live on. Though I may not be able to invest the money optimally, at least it won’t go away and it can be folded into retirement savings to help support me through my dotage.
GDU, a.k.a. Our Beloved Employer, has to sign off on Form SSA 131, which states that the RASL and vacation pay is pre-2010 income. Knowing GDU, I will have to find the form, track down someone over there with measurable IQ, and then raise hell and put a block under it to get them to do this. No one at GDU seems to know the answers to these questions; the university has laid off so many people at HR that the survivors have no idea what they’re doing. Sometimes when they don’t know the answer to a question, they’ll guess and tell you something that’s dead wrong. Sometimes they’ll frankly tell you they haven’t a clue.
More about deferred compensation: I learned you can open an account and just have it sit there as a vessel, waiting for the RASL and vacation pay. That is, you don’t have to contribute anything out of your paycheck. That’s a relief! With a major life change looming, one has other things to do with a paycheck than to let it sit for a couple of years. Management costs, BTW, are nominal and in some cases nothing.
So: if anyone reading this is in the same boat…
A government employee faced with early retirement, when the amount you can earn and still receive Social Security benefits is strictly limited, can shelter severance pay with a maneuver like this:
• Open a deferred compensation account, if you don’t already have it. • Have your employer sign and submit Form SSA 131, which certifies that your severance pay represents payment for work performed before you start receiving Social Security. • Have the severance pay rolled over into the deferred compensation account, realizing that FICA and Medicare will be withheld. • Let it sit there until you reach “full” Social Security age.
At that point you can withdraw part or all of it, as you please, without affecting your Social Security benefits. You will have to pay regular income tax on it when you draw it out of the deferred compensation plan, but by then your income will be so penurious the taxes likely won’t matter much.
Getting disentangled from the Great Desert University and onto Social Security is a nightmare hassle! Right now I have an inch-thick folder of information, instructions, and policies about retirement, and it’s growing. There’s another folder full of paperwork specific to Social Security and Medicare.
Today I learned that when the state of Arizona pays me the first of three payments for my accrued sick leave (known appropriately as “RASL,” as in “you get to rassle around trying to collect this”), I will owe FICA and Medicare taxes on it. And, even though it represents money earned in 2009, it will not be paid until 30 to 90 days after my job is terminated.
Canning Day is December 31. That means the RASL will come in 2010, after I’ve started collecting Social Security. And that means the $6,355 payment will count as part of the maximum $14,100 I will be allowed to earn in 2010.
This will mean that in order not to have my Social Security benefits docked, I will have to refrain from teaching three of the six community-college classes planned for 2010. And that will mean I will have to use the RASL to live on, rather than putting it into retirement savings, as planned.
Item: I can’t afford to stand down from teaching next year. When you do that, you drop off the departmental chair’s radar, and you may find yourself never being hired again. I know: this has happened to me before. Next year I will need to teach as many sections as I can get, so as to build a track record that will get me hired in the future for as long as I can dodder into a classroom.
Item: I need to put that RASL money in savings!!!!! My investments are down more than $120,000 from where they were a year or so ago, and they certainly aren’t going to regain that in the six months I have left to work at GDU. I just can’t afford to substitute RASL for teaching income.
The university will owe me a little over $19,000 in RASL. This amount will be paid in three annual $6,355 installments: in 2010, in 2011, and in 2012. I will reach age 66 in May of 2011; after that, the dock-your-Social-Security trick stops.
Plowing through the stack of policy statements on RASL, I see that a) you can delay applying for RASL as long as 180 days after you’re terminated, and b) you can defer the first year’s payment (and only the first year’s payment) by rolling it into a deferred compensation plan. And c) the second and third annual payments are disbursed on the anniversaries of your first year’s payment, which comes 30 to 90 days after the state receives your application.
So, to avoid having my Social Security benefits dinged by the RASL and to avoid being forced to use the RASL for living expenses, I’ll have to put two maneuvers into play.
First, I’ll need to delay applying for RASL until the middle of April, so that the soonest possible time it would be paid is mid-May, after my 66th birthday. If I fail to do that, then the second RASL payment will also arrive before I reach the “full” retirement age of 66, and I’ll be dinged for that one, too. If I time my application so that the first RASL payment arrives after May 7, 2010, then the second RASL payment will not arrive until I’m 66, at which time I can earn as much as I want (or can) without affecting Social Security income.
Second, I’ll need to establish a deferred compensation plan before my job ends. This is required. That may mean that even though the damned furloughs just ended, I’ll have to continue having my pay docked. That I will get the money back sometime in the remote future is irrelevant to the fact that I need all my paycheck to stash savings to live on after I’m fired.
The deferred compensation plan is managed by a private provider. That means, of course, that there’ll be fees involved. So I’m going to have to pay someone for the privilege of letting them take my money away from me. Isn’t that sweet?
That’s just the start of it. Then there’s the realization that because I’m being canned in December I have to apply for Social Security in October in order to get the payments started in January. But I will not get my last paycheck until after January 1, because of PeopleSoft’s obnoxious lagging pay scheme. Furthermore, because of the furloughs, the gross amount on an October paycheck will not reflect accurately what GDU will pay me over 2009’s twenty-six pay periods. Nor will I have statements from my freelance clients, nor will I have any clue how much my S-corporation will pay me between September and December 31.
So, how will the Social Security Administration calculate my benefits, when no accurate statement of my 2009 pay will be available until after those benefits are supposed to start?
Then there’s the business of all the vacation pay the SOBs owe me: $5,287 worth. This payment also will come forth in January, 2009.
Will that be held against my Social Security earnings, even though it represents pre-2010 income? Can that amount be rolled over into this deferred compensation plan?
And if I have to roll it over…my GOD! I intended to use that money to cover COBRA. If I have to roll it over into deferred compensation, I won’t have anything budgeted to pay for health insurance between January 1 and May 7, 2010. I’ll have to dig into my retirement savings to cover that.
The more I look into this stuff, the more questions come up and the more unfair the whole mess looks. No wonder I grind my teeth all the time!
SDXB,a fellow who found his way clear to jump off the hamster wheel in his late 40s and never went back to the workplace, is fond of saying that “money happens.” By that he means that he never seems to lack for money (and it’s true he lives well, despite having little or no visible means of support) and that occasionally unexpected little windfalls happen.
Truth to tell, he has always made money happen. Until he reached retirement age, he supported his bumhood habit by occasionally volunteering to go TDY with the active-duty Air Force Reserve, in which he was the highest-ranking non-com in his job classification. The military pays certain people who are effectively temp workers pretty well, and reservists who stick with it get a nice pension and health care, plus access to commissaries and base exchanges around the world. He also did a fair amount of freelance journalism, especially travel writing, which underwrote trips you and I would regard as vacations and provided some nice tax write-offs.
He insists that a person who is willing to live frugally, who has even minimal resources, and who makes bumhood (read “permanent unemployment”) a priority can live comfortably without having to labor in the salt mines. And for him it’s worked: he’s almost 70, and he hasn’t held a steady job since the day he got up from the editor’s chair at a Scripps-Howard newspaper and walked out the door. He climbed on a plane, flew to Hawai’i, and camped on the beach for a month, where no one could reach him by telephone. He’s bought two houses in cash and he buys his cars in cash; he travels, he never wants for entertainment…and he doesn’t go to work.
Well, I’ve always been too cowardly to pull that one off, even though he kept assuring me that I had more than enough to live on and that money happens.
Now that I’m about to be forced to get out of the editor’s chair myself, though, I’m discovering that the guy may be right. In the past couple of days, money has happened three times.
Two happenings occurred yesterday. First, a client from bygone days resurfaced to ask if I’d edit a new project he’s cooked up. It was short and easy—I got through it in just a few hours and will bill about two hundred bucks. While I was playing with that, the phone rang, and lo! There was the chair of the English and Humanities department of Phoenix College, an inner-city branch of the community college district, conveniently located about eight minutes from my house.
Asked she, would I take on, at the last minute, a 200-level course in journalism?
Happy to, said I, but I’m already signed up to teach the maximum number of credit hours the district will permit.
No problem, quoth she! Because it’s an emergency hire, she can get an override.
You’re on! said I.
She said she’d have to be sure the course actually makes before forking over a contract, but it only needs 18 students. It’s a hybrid course that meets once a week, and when I looked over the district’s requirements, I realized it’s much the same course I’ve taught several times at Scottsdale!
So. This fall, in the four months running up to Canning Day, I will gross ninety-six hundred extra dollars with this side job as a community college teacher. Since our office is winding down, I doubt if this will cause much strain; after all, the “two” GDU courses I signed on to teach in the spring of 2008 morphed into four, and I survived.
Meanwhile, an hour ago I finished reading another detective novel for pay. A pretty darned good one, too: well written and clean. Another $250 in the busker’s hat.
Money happens, but money unhappens, too. A few mutual fund, IRA, and 403(b) statements materialized toward the end of the week, showing that my devastated investments are reviving a little. Since reaching their April 2009 nadir, they’ve climbed about $9,000—and that’s after I took out about $15,000 to pay off the Renovation Loan. Still, the total of retirement savings is down $126,792 from the high balance in May of 2008: thanks so much to the greedy bastards and misguided dogmatists who’ve run the country and the economy this past decade or so.
Think of that: a hundred and twenty-seven grand lost in the collapse of the Bush economy. If that money hadn’t unhappened, I’d have plenty to retire on without a worry in the world. On the other hand…if the economy hadn’t crashed, I’d stick with a boring job for the next three years and not be about to embark on the grand adventure of bumhood.
Win some, lose some. Maybe being pushed to quit working, something I’ve wanted to do for a long time, is worth a little money unhappening.
As McArdle puts it, people who declare serial bankruptcy “have very different financial profiles from the average American—less savings, more debt. When an adverse event occurs, they have no margin for error.”
It’s hard to argue with this logic. While there’s no question that some people fall into the financial tar pits through no fault of their own—catastrophic health problems in a country that provides little or no reliable health care coverage being a major cause—I’ve known several people who have brought themselves to the brink of homelessness. By and large they do it with behavior that is overtly self-destructive, so much so one wonders if it’s a strategy to attract attention and sympathy.
Some people see the profligacy allegedly modeled by Andrews’s wife, Patty Barreiro, as a moral failing. I don’t think so. In my experience, it’s a pathology: a mental illness that needs to be treated with therapy and medication. If you look at the way the sufferers behave, you see a pattern, one they seem to be unaware of:
• a series of self-destructive decisions; • self-destructive behavior that continues for years; • inability to recognize or pull out of self-destructive behavior; • inability to distinguish between self-indulgence and practical need; • a tendency to set up scenarios that naturally lead to one’s own victimization; • a flair for choreographing real-life melodrama; • appeals for sympathy and help to family and friends, often centering on a specific “target” individual.
Living beyond one’s means is self-destructive; it naturally leads to financial melt-down. Self-destructive behavior is pathological behavior: it’s a symptom of mental illness, not a moral failing. People who experience serial bankruptcies are telling us they’re suffering from mental disorder.
One woman I’m thinking of exhibits an extravagant pattern of feckless financial behavior. When you look at the bigger picture of her life, though, you realize that her financial irresponsibility is part of an even larger pattern of consistent self-destructiveness.
• In her twenties, she marries the scion of a wealthy family. He appears, on the surface, to be a good choice, until you learn that he was thrown out of some expensive private schools for his wild behavior and drug abuse.
• She stays married to him despite his recreational cocaine use.
• She remains with him after he proposes that they engage in a f**k-fest with a group of swingers, which he thinks might be titillating.
• They charge up vast amounts on credit cards, much of it covered by his parents, who each transfer the $10,000 a year to their son and daughter-in-law, adding $40,000 a year to the son’s teaching salary. This makes the two appear to be more affluent than they are; they do not save the money—they spend it.
• When she begins to speak of leaving him, their home is vandalized and utterly destroyed. Their insurance company pays to gut out the interior and rebuild it, as well as replacing all the clothing and furnishing that were destroyed in the attack. Terrorized, she cleaves to her husband and drops all talk of divorce.
• Over time, she grows more unhappy in the marriage and again begins to mouth it around that she is going to leave him. This time she is kidnapped by a group of thugs, driven into the desert, tortured and terrorized. They cut off her ear, torch her car, and chase her into the bush.
• Although the police state they suspect the husband of complicity in this attack, she denies it and flees back to his arms.
• His father buys her a new car and also goes in with her husband to purchase an outrageously expensive house, far beyond the couple’s means.
• Despite increasingly bitter and dangerous marital discord, she begins to have children by her husband. She accuses him of raping her but remains with him.
• After the second baby is born, the husband states unequivocally that he wants to stop having children. She wants another child. So, she lies to him, telling him she’s on the pill, and deliberately gets pregnant again.
• Furious, the husband rejects the third child, refusing to have anything to do with his second son. She stays in the marriage despite increasingly abusive treatment and constant discord.
• The husband takes the two favored children on a spring-break student trip he is supervising for his school. While he is gone, an arsonist breaks into the expensive home as the young woman sleeps with the toddler in her bed with her. He douses most of the house with gasoline, sets up gasoline bombs in the hallway outside the bedrooms, and torches the place. She and the child escape through French doors in the bedroom. The house is a total loss.
• Despite the unprovable suspicion that the husband had something to do with this second assault and evident attempt to kill her and his unwanted offspring, she remains in the marriage. The insurer rebuilds the house and then cancels the couple’s coverage.
• As time passes, the old man becomes disenchanted with the son’s irresponsible behavior and conceives a violent dislike for the young woman; he cuts them off, leaving them with enormous house payments.
• She finishes a degree in nursing, and so the two manage to cover the house payments on their combined salary—just. They continue to spend well beyond their means, racking up thousands on credit cards. They never seem to think of selling the house, which before the bubble was worth well over $600,000; when this is suggested to her, she insists they need the space for their three children.
• By now the two hate each other but stubbornly remain together.
• He installs a camera in one of the home’s showers, with which he videotapes the couple’s teen-aged babysitter in the nude. She finds the tape and confronts him, but still remains in the marriage.
• She announces she has kidney cancer and says she is being treated for it in another city. She goes through an elaborate charade that includes cutting off her hair and claiming to undergo chemotherapy and radiation therapy, to which she commutes by automobile. Amazingly, those closest to her seem to buy this story, even though she’s climbing mountains in a local desert park. Not until her sister comes into town, summoned to say goodbye to her, does the whistle get blown: the sister, who has worked for years in medical offices and herself is training to be a nurse, tells their father that there’s no way the woman has cancer. Subsequently, she undergoes a miraculous remission.
• She picks up a sh*thead in a bar and begins a passionate affair, going so far as to move her bed into the guy’s house. Still, she makes no move to divorce the husband and continues to live in their house.
• She gets pregnant by the boyfriend. This man has shown no inclination to support his other illegitimate child, and he now takes up with another woman.
• She refuses to terminate the pregnancy. She returns to the husband and demands that he support her paramour’s child.
• They continue to spend money on expensive vacations and vehicles. Behind her husband’s back, she buys a Toyota Sienna (a $30,000 van), financing it on the strength of her own salary.
• They declare bankruptcy. They do this minutes after the law is changed in favor of creditors. As a result, they are forced to sell the house.
• That notwithstanding, after the proceedings end the first thing they do is spend three weeks vacationing in San Diego!
• When they finally divorce, they go at each other tooth and nail. He, of course, has bottomless pockets—the old man is now dead; the widowed mother is wealthy in her own right and finances the most high-powered lawyers in town. They make a project of destroying the young woman. She fights back, hiring her own high-powered lawyers, who abandon her when she runs out of borrowing power to pay their fees.
• The issue of the illicit filming of nubile young girls comes up in court; through the machinations of her lawyers, it is brought to the attention of the school board, so that the husband is fired from his high-school teaching job. Now the kids have no health insurance. She is forced to take a salaried nursing job to obtain health insurance, leaving her higher-paid contract nursing work.
• She rents a series of amazingly expensive houses, one of them on an artificial lake, each of which costs well over $2,000 a month. When advised that she needs to seek more modest housing, she insists that she needs lots of room to accommodate the four kids. She is evicted from these, one by one. She buys a car, which is repossessed when she defaults on the payments; to take the car, the repo man breaks down the garage door at the rental house where she’s living.
• When advised to raise some cash by selling some of the piles of stuff she has accrued, she refuses to do so.
• Her eldest son, now a young teenager, accuses his father of sexually abusing him. He walks from his home to a nearby police station to report this. Because of the rancor involved in the divorce, however, his accusation is disbelieved by the court, despite the fact that a prior judge had formally ordered the father to desist from his habit of sleeping in the children’s beds.
• She fails to file income tax returns. She claims she thought her husband was filing; in the last year of their marriage, he filed separately. She says she did not know he had done so. That notwithstanding, in following years she continues to file no income tax statements. The IRS inquires.
• As her credit rating drops into the sub-basement, she is forced to rent from a fly-by-night landlord who buys junk houses and rents them, unmaintained. She engages him in a fight over the decrepit structure. In the course of photographing some substandard thing she wants fixed, she steps out onto a second-floor balcony, camera in hand. The rotted balcony gives way under her weight. She falls through the floor to the pavement below, sustaining a life-threatening head injury.
• After she gets out of the ICU, she no longer can work because the resulting brain injury makes it impossible for her to remember doctors’ orders, to focus mentally, or to comprehend numbers.
• She finds a lawyer who will file suit against the negligent landlord, on a contingency basis. A month and a half goes by and he does nothing.
• She stays in the substandard house, unable to move or work. As her unpaid leave of absence from her job draws to a close, her health insurance runs out. She is is too incapacitated to deal with the complex issues of COBRA (and does not even know about the ARRA discount, of which her employer does not inform her) and is now helpless, with $5,000 to her name, debt beyond belief, and nowhere to turn.
• Her father tries to take over her finances, get her on disability, and enroll her in the state’s substandard answer to Medicaid. He learns the lawyer has done nothing and manages to hire another lawyer, who apparently is willing to do something for her.
• Faced with a lawsuit, the landlord defaults on the house’s mortgage and allows it to be foreclosed. She receives a notice from his lender informing her she must move out by the 16th of this month: that is 12 days from today.
• She has no credit for another rental; she has no place to live; and she is too ill to move. Her father lives in a two-bedroom house in a retirement community, has no desire to house her and her unruly brood (the older girl is so sexualized that the mother’s male friend refuses to be present in the same building with her without another adult present), and has tickets to leave town on the 16th.
It’s very likely she’ll end up in a homeless shelter, at least until her father can get back into town and get her into Section 8 housing, for which she undoubtedly qualifies. She will have to declare bankruptcy again—if she legally can.
While the most immediate cause of her troubles is profligate spending and failure to live within her means, you can see that this is just a small part of a larger pattern of self-destructive behavior. We have
• an unwise marriage to a man of questionable moral character; • persistence in the marriage through a series of abusive tactics and mutual misery; • apparent inability to evade abuse; • inability or unwillingness to flee a man who may have intended to harm or kill her; • deliberate spawning of children she could not support; • dependency on a hostile husband and, later, on an elderly parent well past the ability care for an adult child and a hoard of kids; • involvement with a second, even more undesirable man; • consistent spending beyond her means; • repeated cries for parental help to deal with the self-inflicted results of these acts.
Other bankrupts I’ve known exhibit similar patterns. Like Edmund Andrews, they lack the element of marital abuse, but also like him, they have financial problems resulting from a long series of decisions, many of them nonfinancial, that were at base self-destructive. They do things to harm themselves, and irrational money behavior is only one of those things.
Has our society suffered some kind of collective madness, with the widespread frenzy for buying outrageous houses, expensive cars, costly communication plans, and wildly expensive electronic gear? I doubt it. Most people are not in bankruptcy. By far the majority of Americans live reasonably in affordable homes; if they’re about to be foreclosed, it’s because of job losses or the crime of being an American with an expensive medical condition.
My point is that people who experience serial bankruptcy indeed are “different” from most people: they’re mentally ill, made vulnerable by some compulsion to harm themselves. This is not a moral failing.
The moral failing has been in the greed and recklessness fostered by an intellectually bankrupt political, religious, and social leadership. We are all suffering from an institutional collapse brought about by short-sighted, avaricious, and foolish leaders. That is separate from the individual stories of individual citizens. As usual, because of an institutional failure, the mentally ill and those who depend on them or who have to care for them suffer the most.
Gather Little by Little reports that he ran up against the six-withdrawal limit with an ING Direct savings account he was using as his “firewall.” The bank informed him that the next time he made more than six transfers out of that account in a month, the account would be closed.
Take that, you PF desperado!
Well, I must say, I was surprised, too. I thought this applied only to money market accounts. Withdrawals from money market savings and checking accounts are strictly limited. Turns out the Federal Reserve’s Regulation D applies to regular savings accounts, too. I cruised over to my credit union’s site to see what they had to say on this issue, and lo!
What constitutes a Regulation D transaction? Transfers or withdrawals by Online Banking or Telephone Banking, preauthorized withdrawals or transfers, and transfers to cover overdrafts. Unlimited withdrawals or transfers may be performed in person or at an ATM, institution fees may apply.
Interestingly, you can withdraw your little heart out if you physically go in to the bank, or, bizarrely enough, if you transfer or withdraw money through an ATM. ???? What the heck is the difference between an electronic transaction on an ATM and an electronic transaction done on your PC (except for the greater opportunity presented by ATMs to gouge customers)?
Oh, well. What it tells you is that there’s at least one advantage to using a brick-and-mortar institution: you can’t go in person to an online bank, but you can visit a credit union or bank that’s within driving distance.
Some time ago, a financial advisor who was helping me figure out what to do with a small inheritance remarked that I have a special talent for accruing savings by bits and pieces. Well, that does appear to be the case. As we noted the other day, by the end of this year my emergency fund will exceed $24,000—above and beyond the $21,000 squirreled away last year to pay off the Renovation Loan for the downtown house.
So…how d’you do that?
Truth to tell, I don’t know how others would do it. But here are the basics that work for me:
1. Get out of debt and stay out of debt.
At the outset of my financial journey, I paid off a five-year car loan in 18 months by adding principal prepayments to each regular monthly payment. This freed up the $300/month payments to put into savings. Within a few years, I also paid off the $80,000 mortgage on my house, partly by renting space in my home and using the income to deal with the mortgage.
Debt consumes an enormous amount of your income. Freeing yourself of debt payments effectively “increases” your income even if you never get a raise—you end up with more money to spend or save.
2. Build savings into your budget.
“Pay yourself first” is the operative principle here. This is another way of saying “spend less than you earn.” As I was paying off car and real estate loans, I also set aside a small amount for savings each month. Bare minimum has always been $200 a month. As debts dissolve, some or all of the amount you’ve freed up by paying down debt can be added to the monthly savings.
When you create a budget, an effective way to create savings is to find a place to put every dollar of income. In other words, rather than estimating what you spend on each category (such as food, housing, utilities, transportation) and stopping when those categories are accounted for, build a set categories that will account for your entire net income. One of the categories should be “monthly savings.” This approach is sometimes called “zero-based budgeting.”
My own approach to budgeting was to carefully track expenditures for a month or two, using Quicken or Excel. This provides a picture of where and how much you’re spending. Expense categories become evident after a month or so of observation. This exercise not only allows you to see where your money is going, it gives you some clues to where you might rein in unruly spending habits (for example, have you run amok at restaurants? did you really need all those clothes?).
Once I understood my spending patterns, I established reasonable amounts for each category, including a category for savings. Any difference between income and expenditure was added to the “savings” category. Raises in pay resulted in raises in savings; although I might not devote the entire raise to increasing saving (you do have to get a life sometime, after all), I did pay myself better savings on the rare occasions the university gave me an increase.
3. Build side income streams.
Find ways to earn above and beyond the income from your day job. A master’s degree in anything will get you an adjunct teaching job at a community college. Night courses are a lot of fun to teach, because they’re full of adults who are there because they want to be there. Such gigs are not well paid, but every buck counts. I put all my net pay from teaching directly into savings.
You’re not forced to stop with just one side job. If you have a marketable hobby, if you enjoy collecting junk and selling it in yard sales, if you can trade a skill or a product for someone else’s skill, products, or dollars, you can create income that also can build your savings account. In addition to adjunct teaching, I also indulge in freelance editing. Every penny that comes in from that endeavor goes…yep! Right into savings.
Besides helping to build savings, secondary income streams have an enormous potential benefit: you still have them if you’re laid off your day job. Having the experience and contacts in teaching and editing will allow me to ramp up both those enterprises in my coming enforced retirement, and, as we have seen, will support me in the manner to which I intend to remain accustomed even if I never get another full-time job.
4. Take full advantage of your employer’s 401(k) or 403(b) plan.
If your employer matches contributions to a retirement plan, for heaven’s sake, go for it! Every dollar your employer puts in means twice as much long-term savings for you.
Allocate these investments intelligently, putting 50 or 60 percent in stocks and 40 or 50 percent in bonds and the money market. You have to assume some risk to make money in your investments; keeping it all in so-called “safe” instruments means your total savings will not keep up with inflation. Though the market does drop every now and again (sometimes with operatic drama!), over time losses and gains level out and and your investments build principal. Put your money in low-load funds to the extent possible (if your employer allows you to invest with Vanguard or Fidelity, these are good choices), because management fees eat into profits at an amazing rate.
Outside of an employment-related plan, go for Roth IRAs. Although these are after-tax instruments, they have the advantage that withdrawals after you reach age 59 1/2 are tax-free, which is huge. Also, they allow you to pass money to your heirs without the nasty tax gouges inherent to 401(k) plans and traditional IRAs. Here, too, set up your IRA with a low-load provider such as Vanguard or Fidelity.
5. Cultivate a frugal lifestyle.
Try to stay sane about this. You don’t really have to live like Our Hero, Scrooge McDuck. But on the other hand, neither do you have to live like an investment banker riding high. Get over the temptation to buy every new gadget just because it’s out there; to accrue stuff because all your friends, relatives and neighbors accrue stuff; to own bigger things and more things than you really need. Learn to distinguish between want and need, and then train yourself to appreciate the nonmaterial riches of life.
Frugality and simple living are the keys to living within your means. Spending less than you earn makes it possible to build savings and, eventually, to achieve financial freedom.
