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Personal Finance

Budgeting: Back to the Envelope Method

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And, for a change: back to Funny about Money’s long-defunct theme: personal finance. You’ll recall, those of you who are Dave Ramsey fans, that one strategy for keeping yourself on budget is called the “envelope method.” In that scheme, you cash out a month’s worth of dollars and fill a separate envelope with the amount designated for each budget item. So, $200 for groceries in one envelope; $100 for gasoline in another, $30 for dog food…and so on, ad ditzy nauseam.

Well, some of us have neither the patience for that kind of ditz nor the stomach for putting an entire month’s worth of funding at risk of being heisted by some enterprising burglar or dropped unnoticed on the pavement. I use credit cards and electronic payment to minimize loss from theft and incompetence.

Conveniently, though, if you happen to bank at a credit union, you have an easy route to create electronic “envelopes.” My CU allows members to add any number of savings accounts. So right now, for example, I have one to collect the constant dustfall of tiny checks from Medicare and the Medigap insuror — whenever a couple hundred bucks accrues, I fork it over to the Mayo. And one for emergency savings. And one to hold enough to cover income tax, accounting bills, property tax, homeowner’s insurance, Medigap insurance, and car insurance, all set aside at the beginning of my personal “fiscal” year, when I have to take an RMD from my 401(k).

This allows you to earmark and set aside specific amounts for specific purposes, placing them where they’re unlikely to get diddled away in day-to-day spending.

Now we have this question: in the absence of a desirable Visa credit card, how — really — am I going to continue to shop at Costco? I haven’t cut up the credit card or closed the account — it’s never a good idea to close a credit account in good standing — but because I don’t do business with outfits that treat me like sh!t, I will never use the card again.

I do have a debit card. But for a variety of reasons, I prefer not to use it. For one thing, there’s not a chance on God’s Green Earth I’m gonna put the thing in a gas station pump — certainly not at the Costco where I shop, which is flanked to the south and the west by dangerous slums and a park that has been taken over by bums. But I do prefer to buy Costco gas, because it’s the cheapest deal in the city. And there’s always an attendant — invariably a large, imposing male — standing around that Costco gas station, so I don’t feel so much at risk as I do at the rip-off QTs within reasonable driving distance of the ‘hood.

So. Here’s my plan:

Create a new savings account to hold money budgeted to spend at Costco. That would be an entire year’s worth of money budgeted for Costco ventures: shopping and gasoline, combined. So let’s say on average I spend, maybe…what? $340 on food, clothing, household goods, dog treats, personal products, impulse buys, and gasoline. When the 2019 RMD comes in — which will be about in September — I set aside $4,080 (= $340 x 12 months) in this account.

Then I trot in to Costco and buy a cash card for the amount I imagine I’ll spend at Costco, both inside the store and at the pumps, over a month. That would be around $340. That is what I carry to the store to make purchases. Each month I pay for it out of the Costco Envelope savings account.

I spend no more than that in any given month. Run out of money: quit shopping at Costco. How hard is that?

If money is left over at the end of the month, the next month’s cash card is loaded with accordingly fewer dollars. So, say, in March I spend $250, leaving $90 unspent; the April card has $340 − $90 on it: $250. Thus whenever I spend less than $340 over a month, the overage stays in the bank account.

So at any given time, the Costco cash card never has more than a month’s budget on it. If I don’t spend the entire budgeted amount, then whatever is not diddled away stays in that savings account.

I figure at the end of the year, anything that’s left can be transferred to the Emergency Savings account, and the Costco Budget account can start over from zero at the start of the new “fiscal year.”

When you know there’s an upper limit on what you can spend, you find yourself feeling a lot more cautious about your spending.

Therein lies the threat of Costco, the Mother of All Impulse Buy Hells. When the budget is open-ended — in your mind you think you have plenty to live on (which you do, if you don’t run amok) — you go “oh, it’s only $20…no problem, I can afford that.” And you could, if you just didn’t keep doing it over and over…

But if you’re thinking, “Helles Belles, I’ve only got x number of dollars to spend today,” then you realize the $20 doo-dad is not a life-or-death purchase. The beauty of the Envelope Method is that it sets a limit on what you’re willing to diddle away.

So, what started out as an annoyance — yet another stupid faceless bureaucratic hassle — may work out to my advantage. Not so much to Costco’s advantage, but certainly to mine: by getting the Costco spending under control, this new, enforced budgeting strategy will let me stay within the annual RMD for another year or two, despite soaring health insurance and property tax rates.

After that, it’s anyone’s guess. I may have to think more seriously about moving out of the country, to some venue where I can stay in the middle class on the retirement income. But we’ll cross that bridge when we come to it…

De-accessioning As Frugalist Strategy

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Getting rid of stuff feels so good! Out with it! Seriously: one tried and true frugalist strategy is simply not to buy things you don’t really need. Another, though, is getting rid of stuff that you no longer need. (Or…ahem…maybe never needed in the first place.)

Case in point: the beloved Pawley Island hammock that has resided in the backyard since I moved into this place. Actually, I bought it in the old house, quite some years before I moved out. Since I was there about 12 or 14 years, I’d probably had it there about 8 or 10 years. That house had park-like landscaping full of mature trees, and so I could hang it between a big old olive tree and a silk oak, one of the messiest trees known to personkind.

Loved loafing in that hammock. Once it came over here, though, I had no place to hang it. Satan and Proserpine (the previous owners) were great at DIY interior redecorating, but they simply did not know what to do with any space not under roof. The backyard had almost no trees. So I bought one of those arc-shaped hammock stands. Like this…

Expensive as all get-out. Took three men and a horse to put it together. Too heavy to move without said three men and the horse. But once in place, it worked fine.

I’ve been in this house for 14 years now. So…that hammock lasted about twenty years before it finally rotted in the sun and rain and fell apart under my weight. No kidding. This: a couple weeks ago. No problem hauling off the hammock. But the wooden stand itself was a challenge.

Thought about replacing the hammock, to the tune of $150. Then thought…why?

Gerardo came by Saturday with his crew. They were happy to take it away. They did deconstruct it (the only way they could get it into their truck). Whether they’ll reconstruct it, I don’t know. But with four guys there, I expect one of them will cheerfully accept the donation.

SDXB used to say that throwing out stuff he was no longer using made him feel lighter. And there’s something to that. In the old house, the thing hung over a patio, so I could walk up to it bare-footed. Here, it stood in the middle of a field of quarter-minus. That’s very fine gravel. It pokes your feet, and if that doesn’t poke your feet, the sharp debris the devil-pod tree drops surely will. So to lay on the hammock, first I had to put my shoes on! Since I’m usually barefoot in the house, shoes are usually lost somewhere. Having to track them down made hammock-swinging more trouble than it was worth.

Hence, the contraption’s near-abandonment.

I’m so glad to get that thing out of there. Even though it served its purpose, it took up a phenomenal amount of room. The dogs would go in behind it to do their business, meaning I would have to climb in behind it to clean up after them. One fewer thing to have to take care of! The yard looks better without the clutter, and now there’s nothing over there for the hose to get caught up on.

Deciding to get rid of the arc stand, which was approaching decrepitude, too, meant I saved a hundred and fifty bucks.

No. Make that more like three hundred bucks. The stand itself was getting pretty weather-beaten and would soon need replacing…and those things cost $150, sans hammock.

There’s no way I’d get another $300 worth of use out of a new hammock and new fancy stand. At the old house, I certainly got my money’s worth out of the hammock. But here, for the reasons above, I’ve rarely used it.

How does that translate into a general Frugality Rule of Thumb?

Well, when something gives up the ghost, delay replacing it. Don’t hurry right out and buy a new one right this minute. Put off a new purchase long enough to see whether you can comfortably do without the thing. Maybe you really don’t need it. Maybe you really don’t want it.

And maybe your spirit will be lighter without it.

Retirement: The Cost of Living

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So, let us continue to mull over the splendid new device that I put on the pool: On reflection, I realized that because the thing will make it so much easier for me to care for the pool, it will delay the need to hire someone to do the pool maintenance for several years….or to give up living here and move into an old-folkerie. Possibly, if my health holds, for quite a few years: nothing that remains to be done is very strenuous. I would have to be seriously incapacitated to find myself unable to do the minor jobs that remain.

In other words… The $1250 I put into upgrading the pool equipment will put off the dread day that I have to move into a life-care community — possibly by a factor of years.

And every year that I do not move into one of those places saves me, in today’s dollars, the net on the sale of my house (about $300,000, the cost of buying into a life-care community) and living costs of something between $333 to $2,400 a month. In other words, every year I do not move into a warehouse for old folks, I keep the value of the house in my estate, hopefully to be passed along to my son, and I save a big chunk of dough every month.

How do I figure?

Welp, it goes like this:

Life-care communities — where you move in while you’re still ambulatory, live “independently” in a private apartment, and get a couple of meals a day plus, if desired, a limited amount of driving to doctors and shopping — are spectacularly expensive, and those expenses are spectacularly difficult to calculate. This is because there are several schemes for buying in. On the low end, you can effectively rent the place without a large buy-in. On the high end, you pay a six-figure buy-in fee plus a hefty monthly bill: basically you sell your house and give the outfit the proceeds of the sale.

Assuming your house is paid for, that is.

It’s also very difficult to get a handle on exactly what those costs are likely to be. Many of the figures posted online are several years out of date — they increase with inflation at about 4% a year, but you have no way of knowing exactly what a 2009 average figure would be in 2018.

In 2013, Marketwatch reported that the average buy-in fee for a life-care community was $280,618. That would be about what I would net if I sold my house today — maybe a little bit less. Now add 4% a year over the past five years, and you’re up around $341,400 — i.e., more than I could get for my house, after realtor’s fees.

A 2008-09 study by Metlife found monthly costs for these places ranged from $2470 to $3469. Again, if these figures have increased by 4% a year, today that could be as much as $3750 to $4748 per month!

These figures represent nationwide averages. Locally, in Scottsdale one of the few places — possibly the only place — that posts its prices online wants $243,200 to 283,200 to buy in to a one-bedroom apartment (remember: this is the equivalent of the net proceeds on the sale of a 4-bedroom home on a quarter-acre of xeriscaped land with a swimming pool, in a half-way decent centrally located neighborhood within walking distance of the lightrail) PLUS a monthly fee of $3260-$3600. That’s only for food, lodging, and minimal transportation. For one person. One. Not two. If one bedroom is too cramped for you, then you might consider one bedroom plus a den: entry fee, $297,400 to $411,000; monthly fee: $3700 to $3900.

Well. To live in my house, which is paid off and which has one hell of a lot more liebensraum than one measly bedroom in a people warren, costs me about $1,545 a month. Toss in groceries, a few unplanned expenses, and the cost of running the paid-off car, and you come up with something between  $1,600 and $1,767 a month.

That not only gives me all the very high-quality food I choose to eat, it also gives me a car that takes me any place I choose to go at any time of day I choose to travel. It covers the cost of yard and regular house maintenance, plus utilities, taxes, and insurance. In other words: it covers more than the palace in Scottsdale costs. By how much?

Subtract the monthly costs of running my house and my car plus my average grocery and utility bills from the monthly amount it will cost me to live in one of those places (assuming I’m unfortunate enough to live long enough to have to move into one of them), you get a difference — in my favor — that ranges from as little as $333 a month (for a low-end retirement home, where you really, really do NOT want to live) to as much as $2,400 a month (very nice, no doubt: but still…an institution).

What that boils down to:

Every month that I live in my house, I save approximately $1600 to $1767 a month over what it would cost to live in that Scottsdsale old-folkerie. In other words, every single month that $1250 filter stands out there in the backyard helps to make it possible for me to stay in this house is a savings of more than the filter cost.

And that doesn’t count the cash value of the house, which I would very much prefer to leave to my son.

Banner image: The Village at St. Barnabas. By Generic1139 – Own work, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=41879989

The Endless Dollar Drain

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Today’s dollar drain courtesy of the City of Phoenix: the new greased-gravel “paving” they’ve installed in the alley pretty clearly is not going to stand up to the force of water flowing out of a backwash hose. In theory, it’s against the law to backwash into an alley: if they catch you, it’s a $2,500 fine. This law is most honored in the breach. Presumably if you drained an entire pool into the alley — upwards of 10,000 gallons — someone would notice and the city would show up at your door. But most of the time, no one pays any attention.

However, you can be sure the Trash Cops certainly will notice if the fine new fake blacktop is dug up. Besides which, even if no one complains, the damn stuff is almost impermeable to water…and of course, they didn’t build drains alongside the crud. So that means every time it rains and every time someone backwashes onto it, we are going to have fine mosquito ponds.

For quite some time, I’ve been figuring that when the DE filter on the pool gives up the ghost, I’ll replace it with a cartridge filter, which doesn’t have to be backwashed. In theory, you only have to take it apart twice a year and clean out the cartridges. (We’ll believe that when we see it…) If this is so, it will represent a considerable savings both in terms of hassle and of service calls. The present filter has to be cleaned out three or four times a year…and the $1,250 tab for the thing is less than half the cost of a fine.

So the pool guy is out there. The difference in how efficiently this device runs, as compared to the ancient one, will make up $1,250 in my time — and in annoyance factor — within just a few months. Think of it: NEVER HAVING TO BACKWASH AGAIN!  Wooo hooo! And when you change out the pump pot basket, you don’t have to bleed off the air, another source of hassle and mess.

It does mean I will run out of money before next September, when I have to take the annual required minimum drawdown from savings. Fortunately the stock market is up, and fortunately I can charge this on a credit card, thereby deferring payment into 2018. That means I can move the tax hit into a year in which our tax bill supposedly will drop (har har hardy-har har!!!!). If the usual set of politicians’ lies turns out, for a change, not to be outrageously false, then maybe I can at least keep the tax hit down some.

Plus I expect the economy to tank after 2018 — probably in 2019 or 2020 — and I’d like to cover as many of these expensive house maintenance jobs as possible while the market is up and my investments will recover the losses in a month or two.

But my God, the backwash valve on the Money Bin has been running out of control now for months!

Paying off the car drained both personal and corporate bank accounts. I’ve had a thousand bucks worth of dental work so far and at the least am still looking at replacing two crowns. This predicament, naturally, developed after I took it into my pretty little noggin to paint the house, which probably wasn’t immediately necessary, but certainly will be if I decide to put the place on the market and move away from Bum Central and Meth, Inc.’s headquarters. I do love my house and my neighbors, but realistically, there are some drawbacks to living here. 😀

Among them, one could argue, is the cost of maintaining the Funny Farm…

The Prepper’s Economic Guide to 2018

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Now we’re all prepared for the next big disaster to descend on us, right?

Well, maybe not so much…at Coffee with a Cop last week, I did win a first-aid kit for the car. But that’s about as far as I’ve gone in the emergency-preparedness department. At least I’ll have a few band-aids, anyway, come the Apocalypse. {sigh}

However, there is something y-cumen in that we can prepare ourselves for, and it’s a lot more likely to happen than a Korean bomb dropping on our heads or a wildfire consuming Philadelphia.

Videlicet: let us speak of the next Great Recession.

Now, just as we’re having fun? Yeah: now.

We do know that what goes up must come down. As Leo Abruzzese, The Economist’s public policy consultant, notes in a prognostication for 2018, “If it [history] is any guide (and it is), the business cycle is coming to an end. The world economy tends to tip into a recession every eight to ten years, and the last one ended in 2009.” Further, he adds, “Recessions typically start when central banks, eager to keep economies in check, raise interest rates too far and too fast. On cue, America’s Federal Reserve will probably raise rates three times in 2018 after three increases in 2017.”

Higher interest rates, Abruzzese goes on to explain, “foretell an end to credit cycles as indebted companies and consumers default in greater numbers. . . . [They] can also produce big corrections in stockmarkets.”

If you’re a legacy follower of Funny about Money, words like these no doubt make you think been there, done that. And yup: we sure have.

Given that economies, like everything else, go up and down; that ours is now way up; and that anyone who can remember the Reagan administration and the Bush fiasco has, by now, figured out that the Republicans’ trickle-down economics dogma is a dangerous superstition, it behooves us to be prepared for the next big economic crash. That, I submit, is a lot more likely than a nuclear hit upside the head from Kim Jung Un or a hurricane in your living room (enjoyed by our friends at Planting Our Pennies) or a wildfire cresting the nearby hills (equally enjoyed by our favorite escapee from Chicago).

What can we do to prepare ourselves for the next “Great Recession”? One that, we can be pretty sure, is likely to fall under the heading of “Major Depression”…

Now is the time, IMHO, to look back on the G.R. and think about what we did right and what we did wrong. Consider these strategies:

1. Get out of debt! In other words…

Get out of debt!

Get out of debt!!

GET OUT OF DEBT!!!

Pay off your loans as fast as you can. And do not rack up any new debt.

If you have cash with which to pay off a mortgage, use it. Do it! Your financial adviser will have a freaking kitten, because of course you are earning one helluva lot more in the stock market just now than you’re paying on one of the present low-rate mortgages. My guy was furious.

But lemme tellya: If I hadn’t paid off the mortgage when I had the money, after I lost my job in 2009 (permanently, folks: “retirement” was not my choice), I would have lost my home. There is no way on God’s Green Earth I could have made payments on a home loan that amounted to 80% of $232,000. I’d have been thrown out on the street…like my neighbor across the road, like my middle-aged students who had worked hard all their adult lives and paid their bills every month, and maybe even like some of you. The only reason I’m writing this from my living room rather than from a low-income apartment, a motel room, or the 7th Avenue Underpass is that the house was paid for when the sh!t hit the fan.

Pay off all your other debts. Accelerate payments on your car. Do not buy a new car, or if you must replace a vehicle, buy one seriously second-hand. Accelerate payments on your credit cards, and once you have those cards paid off, NEVER charge more than you can pay in one month. If you couldn’t pay for it in cash or with a check today, just do without it until you can.

This takes some self-discipline. Probably the most direct and easiest way to summon that self-discipline is to manually keep track of your charging, as you go. Enter “pay off credit card” in Funny’s search bar (on the right side of the page) and you’ll find a slew of  suggestions for climbing out from under debt.

2. Save. Save regularly.

Establish a savings account at your bank or credit union and pre-pay yourself a percentage of each paycheck. If, for example, your goal is to save 5% of income for emergencies, arrange for the bank to make an automatic transfer on every payday.

Do not spend this emergency fund on anything other than a real emergency. It’s not a Christmas fund or a vacation fund. It’s a disaster fund. Keep it that way.

3. Build frugal strategies

Consider the regularly recurring expenses that you can do away with, should the evil day come.

• Cable TV
• Expensive mobile phone plan
• Frequent meals out
• Amazon Prime
• Fitness plans
• Subscriptions

Look closely at your credit card and bank statements and consider: do we REALLY need to pay for that? Is there a cheaper alternative? Can we do without it altogether?

Even if you don’t want to cut back now, at least know what you can cut back on.

4. Create a potentially money-making side gig.

This can be a hobby while money is coming in the door. Still, a hobby that can be monetized is a potential life-saver. Even blogging brings in a few bucks a month. And consider that, over at Budgeting in the Fun Stuff, Crystal’s dog-sitting enterprise — originally a side gig of the first water — has now evolved into a growing, paying business.

Any activity that yields a service or a product is potentially a money-making concern. Consider what you can do, start doing it as a hobby, and know in advance how you could convert it to a business.

5. Think ahead.

You’ll have to figure that one out yourself. You know your circumstances. Review them all and think about how you can economize — whether now or in the future — and how you can best work to recession-proof your finances.

Do it now. Let’s not be caught by surprise this time.

Helping a Millennial Future-Proof Their Finances

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If you are a parent of a Millennial, a friend of a Millennial, or a Millennial yourself, it’s time to start dealing with the some of the difficult financial realities that today’s youngest working generation is dealing with. Millennials may have come of age at a difficult economic time in American history, but this doesn’t mean that they can’t have a better future on their own terms. Millennials will benefit from some traditional financial methods for security and future wealth. There are also some financial techniques which will benefit Millennials in particular. If you have influence in the life of one of these young people, help them out with this kind of advice.

 Some of the specific financial problems that Millennials found thrust upon their laps over the past decade were related to the 2008 financial crisis in the United States and around the world. Many young people found themselves graduating from a college without a job to go to and with tons of student debt to their names. Fortunately, the worst of this is over, but many young people are still not fully recovered.

 This is a good time in history for young people to specialize in skills that will provide them with adequate improvement moving forward. Some employers even pay for their new hires to get an updated education. For specialized fields, there are simply not enough qualified people to fill the jobs. Disappointed Millennials who still haven’t found an application for their major may be well-served by calling it a wash and acquiring new skills which can be had without spending a great deal of money on a new degree.

 For Millennials who have families and children, there is even greater reason to future-proof finances. This can be done in many ways. Acquiring wealth in many forms: through career, through saving, through investment, through equity in a home, and even through life insurance. Life insurance policies are very affordable for young people, because they are statistically more unlikely than some to die within the term of the policy. If the worst were to occur, life insurance could help a Millennial preserve their wealth for the people that matter most to them.

 Some Millennials are future-proofing their finances by increasing their knowledge to compensate for the lack of financial opportunity that was available to meet them when they graduated. By becoming more financially savvy, young people are investing in new opportunities, saving with better intention than previous generations, and living on less with greater satisfaction than typified more materialistic cultures that characterized some segments of earlier generations.

 If you count yourself among this generation, then there are many ways for you to make the most of your money in the long term. Get savvy and always make financial preparedness a priority. If you learn how to spot opportunities and make the most of what you have, you’ll likely end up in a better situation than those who squandered the roaring economies of several previous generations. Future-proofing money isn’t easy for Millennials, but it’s worth the effort.