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Personal Finance

Scraping by on $110,000?

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Over at Everyday Tips and Thoughts, proprietor Kris expresses some shock at the idea that a family profiled on CNN Money might not be able to live on $110,000. Particularly startling is the way CNN frames the decision the couple contemplates: whether to have the mother drop to half time, at a salary of $32,600, so she can be home with their two children: “Is that enough [along with the father’s $78,000 salary] to support their lifestyle?” Readers are registering their outrage that anyone would think $110,000 is too little to support what surely must be an extravagant and spendthrift way of life.

But…but, I say, but…

It depends on where they live. “Lifestyle” may not mean a dwelling in a McMansion and tooling around town in two Mercedes SUVs. It may simply mean they want to live in a sophisticated city that offers cultural amenities unavailable in cheaper areas. Often in such cities the public schools are inadequate—well, heck…in most American cities the public schools are inadequate. If you care about your kids’ education, you send them to private schools. Tuition at the day school my son attended—in Phoenix, a low-rent town—is now $12,740 for pre-kindergarten and $15,100 for K-8. That’s per kid. Yes, per year.

In a more desirable city, you not only have the breathtaking cost of schooling, you also have the staggering cost of keeping a roof over your head. Recently I looked into returning to San Francisco, my mother’s hometown and a place that I truly wish I could live. A one-bedroom apartment in a development that is universally panned on Yelp is $2,400 a month! God only knows what it would cost to live in a better area. Studios in San Francisco typically run around $1,800 to $2,000 a month.

That’s just for starters, before you pay for the lights, commute to work, buy baby’s shoes, or put food on your table. Imagine what it would cost to raise two children under those circumstances!

Yeah. It’s true: Dad’s salary of $78,000 would provide an adequate lifestyle for a family of four in Phoenix; $110,000 would keep them in comfort. But Phoenix is a hole in the middle of a cultural desert. You can’t put your kids in public school here, and even at a $15,000/year private school, the quality of education is just OK compared to high-ranking private schools in other states. Parents who can’t afford that but are committed to educating their kids well and keeping them physically safe often home-school. You spend your summers trying to stay out of 115-degree heat. Politicians like Governor Jan Brewer and Sheriff Joe Arpaio, who represent the prevailing mentality, are such crass troglodytes that when you get on an airplane and someone asks you where you’re from, you’re embarrassed to admit you live in Arizona—when traveling, many Arizonans tell strangers they come from somewhere else.

Some people prefer to live in more enlightened venues. Unfortunately places like San Francisco, Seattle, Boston, New York, Paris, and London cost a lot of money. In those cities, $110,000 wouldn’t go very far for a family of four.

The fact that Dad is earning 78 grand as an assistant principal and Mom is presently earning $65,200 as a literacy coach (!!) suggests they live in a high-cost-of-living city. He sure wouldn’t earn that in a right-to-work state like Arizona, where education has traditionally been short-changed. here is $65,000. And I kinda doubt anyone ever heard of a literacy coach around here. By “support their lifestyle,” they may mean living modestly in a great city with civilized amenities.

You can live lots cheaper in lesser cities. You’ll make some trade-offs, though… My college freshmen just turned in an assignment for which they were asked to tour the campus library, take notes, and write a narrative describing their experience. Several said they had not been inside a library in many years. These products of our fine school system, all them bright and hard-working young men and women, write like this:

“In the General Collection there are many books to chose from, looking in the PQ through PS one of the most famous authors was Charles Dickens. The title is The Old Curiosity Shop.”

Literacy? What’s that? We got sunshine. We don’t need no steenking books!

How volunteering can help your business

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Little knowing what I was getting into, a while back I agreed to help with the program for the Arizona Bach Festival, a new musical series featuring internationally known classical musicians and the Grammy Award-winning Phoenix Chorale. When I said “help,” I was thinking “editorial help.” But what really happened was that I got volunteered to sell ad space for the program.

Well, of course, I don’t know the first thing about ad sales. But we just made our first sale! w00t!

In theory I’ve been offered a small commission on each sale, but in fact I plan to donate the proceeds back to the festival or to All Saints, whose music director is one of the moving forces behind this event.

Even though I’m just getting started, it’s already easy to see that I’m getting a great deal more benefit from this experience than a 15 to 25 percent commission. In fact, it’s forcing me to go out into the community and meet people—businessmen and women who can use my services and are likely to actually pay for them. How will this help The Copyeditor’s Desk, Inc.?

Let me count the ways:

• Renew and re-establish old business relationships
• Join or rejoin trade groups I’d allowed to languish
• Take time to talk with people whose friendships I’ve neglected
• Remind old friends that I’m still looking for business
• Find new opportunities to market my business as well as theirs

Just about any time you get out of your cave, it’s good for business. A couple of months ago, I volunteered to edit the Arizona Book Publishers Association newsletter. When the group announced on its website that I’ll be taking over with this issue, right off the bat someone e-mailed me asking if we would do editorial work for an offshore fulfillment house.

Business—that is, making money—is about getting to know people. So is volunteering. The two work hand-in-hand.

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

Are You Cut Out for a Freelance Job? Is Anyone?

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Brip Blap has an interesting post today, “Job Junkie.” It’s quite nuanced—a lot is going on in it. Overall, he’s talking about working so steadily and so faithfully that you become “addicted” to work. And he’s got something there. I once had a boss who told me how it felt when he was laid off a previous job. He said, “If you don’t have a job, you’re nothing.”

Job junkie.

One thing Brip Blap observed in passing, though, caught my attention in a slightly off-topic way:

I offer my services to giant corporations for whom my fee is a footnote to a footnote to a rounding error. They don’t mind flinging some cash in my direction to avoid the hassle of hiring a permanent employee to finish their projects; they don’t have to train me, give me benefits and then file endless mounds of paperwork before they let me go.  I can come in, do the work with a minimum of supervision, and leave with no fuss.  So I get paid at a premium.

I was chatting recently with another freelance contractor who also feels well paid. But what looks like good pay to the freelancer, I remarked (perhaps unkindly) looks like something altogether different to the employer.

It doesn’t much matter how much an employer pays a freelance contractor, although of course they’d like to get the person to work for a fraction of the hourly rate a full-time employee would earn. Even if the employer pays you the full equivalent of what might be considered a good salary, he (or she…for brevity’s sake, let’s get politically incorrect here) is getting a bargain. He doesn’t have to pay anything for your FICA, he doesn’t have to cover your health insurance, he doesn’t have to chip in for your dental or vision insurance.

Nor does he have to provide you a decent office. If you work on the premises during your contract, a broom closet equipped with a light plug and an Ethernet connection will do. Far to be preferred, of course, is the opportunity to offer you the inestimable privilege of working remotely: i.e., you pay for your own roof, your own desk and chair, your own lamp, your own heat and air conditioning, your own water, your own computer, your own software, your own DSL, your own pens, your own pencils, your own paper, your own business cards, your own letterhead, your own parking.

It is, in short, such an amazing bargain that “a footnote to a footnote to a rounding error” hardly does it justice.

Consider, for example, what would happen if the Great Desert University decided to call me out of Bumhood and put me back to work on a freelance basis, offering to pay my previous gross salary. What would the university not have to pay?

• $600 a month* for health insurance, the full tab charged by Cigna for a policy that used to cost me just $36 a month. Total savings for a one-year contract: $7,200
• $36 a month for dental insurance; $432/year
• 7.65 percent of my pay, for the employer’s half of FICA and OASDI: $4,972.50 for the year
• Employer’s match for my 403(b) contribution: $4,550
• 1 Dell computer, bells and whistles attached: $1,000, approx.
• Acrobat Professional: $450
• InDesign CS5 Premium: $450
• MS Office: $150
• Steelcase office chair: $200
• Steelcase desk: $1,335
• Phone connection: unknown
• Ethernet connection: unknown
• Office space, air conditioning & heat, water: unknown

Before we even calculate the College of Liberal Arts and Sciences’ share of the phone, Ethernet, air conditioning, and water service, we see the university saves $20,739 on the first year of my services if it hires me on a freelance basis to work out of my home. That’s $20,739 worth of costs that the university passes to me. Before I’ve paid my income taxes.

Subtract 25% for federal taxes and 3% for state taxes; divide by 12 and you come up with a monthly net of $2656—about $400 a month less than I was taking home as a salaried employee. And that’s before I’ve paid the air conditioning, DSL, and phone service for my home office.

So, hiring you to do your job as an independent contractor works out to be a bargain for an employer. For you…not so much. Your gain out of the deal is that you don’t have to commute to work every day.

How do outsourcing employers get away with this? Beats me…  But I have one theory: freelance writers and editors (and to a lesser extent, other creative talent) tend to look at their income figures through rose-colored reading glasses. In my experience with freelancers—of which I had a-plenty during my incarnation as a magazine editor—freelance writers and photographers often perceive that their income amounts to more than it really does.

I’ve lost track of the number of people who’ve proudly told me they earned umpty-umpteen tens of thousands of bucks in a given year—usually some munificent figure like 20 grand. But what you gross is not really what you earn. The figure that matters is the amount you have to live on. When someone crows about earning an amazing $20,000 or $25,000, they haven’t subtracted the many costs of doing business, nor are they connecting the cost of health insurance with their wage, in the way that a salaried earner thinks of healthcare premiums. The money that stays in the freelancer’s pocket, the amount available to pay for groceries and the roof, is much, much less than what she or he grosses—specifically because of the much higher costs of taxes and insurance.

While some people undoubtedly do make a decent income (at least now and again) at freelance contracting, the average Author’s Guild member earns less than $25,000. That figure is high, because Author’s Guild membership comprises well-paid television and movie writers and best-selling book authors, along with all the wretches with a laptop on the kitchen table. Another commonly cited figure is $10,000 a year: a number that hasn’t changed in three or four decades. Digital skills don’t help: Darren Rouse at Problogger did a 2007 survey that showed 26% of 857 bloggers earned under $10 that year. Nine percent earned $15,000 or more; 1% earned $10,000 to $14,999; all the rest earned less than $10,000.

Most people who get by as independent contractors in creative fields manage it because they have a spouse or partner who brings home a living wage. If you want to try to make it on your own, you need some demonstrable skills plus a good track record of employment in newspaper, magazine, or book publishing—preferably with a few major awards to show. And even then, you’ll have to make a lot of trade-offs, particularly in the lifestyle department.

Pay is low and workdays are long. Yesterday, for example, I started at 2:00 a.m. At 5:00 I stopped long enough to feed the dog and bolt down a small breakfast; then it was back to the keyboard. Forgot to eat lunch. Paused again for cheese and crackers around 5:00 p.m. Then worked through until 10:00 p.m.

One of my editors, who made a living in Long Island as a music critic for many years, once remarked that freelance writing is great because it lets you schedule your own work hours: any 18 hours of the day you choose.

He knew whereof he spoke.

* Figures from Great Desert University’s 2009 benefits handout

Surprise! Money happens again

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Yesterday while I was laboring through a client’s large project, in comes an e-mail from the dean of academic affairs at the college where I’m teaching adjunct for handsful of pennies and no benefits. She reminds me that I’m supposed to make an appointment for web development coaching with one of their online curriculum staff to discuss the feature writing course I’m supposed to teach online in the second eight weeks of fall semester (done that—great experience! This place has the most incredible staff!). In the boilerplate list she’s sent is a mention that I’m supposed to be paid for the course during the development phase, half upfront and half when development is done.

Huh?

Well, being a veteran of GDU, I figure that means they’re not going to pay the usual $2,400 for the three-credit course. This looks a great deal to me like a reason to cut the pay for teaching online: if you don’t have to show up in the classroom, why should you be paid the $50 an hour one gets for entertaining students on the campus?

I need that $2,400. This fall I’ll only be teaching two sections, and the full pay for both will not be enough for me to get by on comfortably. Any less, and I’ll be in deep trouble.

The main reason I dropped back from three to two sections next fall was that teaching six sections this year plus freelancing and blogging will put me over the Social Security earnings limit. The way I understand what two Social Security factotums have said is that to extract the 50% tax on income that exceeds the limit, the government withholds an entire SS check. From that, the amount they figure you owe is extracted. You get the rest back…but not until the following January!

Well, I can’t do without a Social Security check for a month, much less for several months. That’s a pretty stiff penalty for daring to earn a living.

However, what I’ll earn from teaching two sections will barely keep beans on the table. There’ll be no more frolics at J. Jill for the rest of the year…or even at Goodwill. And one unplanned expense, even a minor one, will dig into the emergency fund.

So, it’s going to be a difficult balancing act. I can’t do without full pay for one of the two three-credit courses I’m slated to teach. This news from the dean promised to knock me off the highwire.

Forthwith, I e-mailed to inquire: Soooo… How much less are they going to pay for the course?

They’re not going to pay less at all. What she was saying is that the community college district pays adjunct faculty for their time time to develop a course! And they pay the entire amount of the contract stipend for teaching the course—not instead of but on top of the pay for teaching. In other words, I will earn twice as much for teaching the online course as I would have for teaching an ordinary face-to-face course.

Holy mackerel! When we say “money happens,” we’re not kidding. This summer, instead of having no income except Social Security, I’ll have enough extra to carry me through the months when utility bills hover in the stratosphere. It’s far from what I’ve been earning teaching three sections, but it’s just about the amount extra that I figured I’d need to get through the summer without diving into the emergency fund.

And averaged out over the whole year, it in fact does provide annual pay equivalent to teaching six sections.

You realize how unheard-of this is. GDU would never in a million years pay anyone, especially not adjunct faculty, a stipend for “developing” a course. That’s course prep—it’s part of the job. It’s why I try to get each semester’s prep done before the previous semester ends. When I built the West campus’s first online course in “writing for the professions” (read: “freshman comp for juniors and seniors”), I spent the entire summer working for no pay. Three months of eight-hour days for zero dollah. And zero appreciation, too. Not so much as a f***-you-very-much. That was one of many events and conditions that led to my deep disaffection for My Beloved Former Employer.

I’d figured to spend two weeks slapping the course together and then table it. In fact, since the course doesn’t start until October—it’s an eight-week session—I planned to put off working on it until the fall and use this summer for building FaM and writing a book. This development changes that: if the district is really going to pay me (!) to prepare this course, I suppose I’m going to have to do a decent job of it. That means (gasp) actually work.

Of course, it also means I’m going to crash through the earnings limitation.

Upon reflection, I wonder why I’m worrying about that. Who cares if Social Security withholds a munificent $900? Over $16,000 is sitting in my emergency fund.

On the one hand, I don’t want to diddle away that money on living expenses. The budget is so tight that one good-sized house repair or car repair bill will gouge a hole out of that emergency fund. That stash is there to cover a major emergency that puts me in a position where I can’t work: a car accident, a heart attack, a stroke, cancer…all highly likely at this time and in this place. It is, in effect, a year’s worth of disability insurance.

On the other hand, the emergency fund has grown by almost $2000 since the first of the year, because I’m not spending all my income. I can afford to forego a month’s Social Security “benefit.” (Some of us would call that a “paycheck,” it being a payback of earned wages confiscated over a lifetime in the salt mines.) Most of the money will be returned in January, anyway. Even if it’s not returned, it won’t make much difference.

Money happens. And it’s happening at a good time—when I need it.