Cookie Jar$

Sometimes I wonder just how smart it is to self-escrow funds to cover various large bills, such as homeowner’s insurance, property tax, and car insurance, and to sequester funds for emergencies. It could be that getting carried away with this strategy gives you too many cookie jars cluttering the financial countertop and two little in your main pot o’gold to maintain a lifestyle that you really could afford. Maybe.

Yesterday I was pondering how to get through the period when no paychecks are coming in: half of May and all of June. Next time the college pays me will be July 14.

This penurious period occurs, of course, just as utility bills are running up to their max—though we’ve been lucky this year with the weather. Right now, at five in the morning, it’s an incredible 62 degrees out there. It’s almost never that cool at this time of year. Still, I have had to run the air conditioning off and on, and so we can expect a bracing bill to arrive on the desk pretty quick. That, and the Mayo sent a bill for almost $400; apparently Medicare and Medigap covered rather little of the routine physical I got there a couple of months ago. And the Dog Chariot’s oil leak is getting worse—that’ll be another $200 or $300, not counting the $350 for a new timing belt. Plus the hateful palm trees have to be trimmed: yet another $350.

Anyway, while I was studying sources of funds to cover these expenses, it occurred to me that in fact I have more than enough cash in the bank to cover them. The problem is, most of it is dedicated to specific purposes. Videlicet:

Jeez. That feels  like a ton of money to me. Maybe instead of having these funds scattered in four accounts (there’s also the joint account with M’hijito to cover the mortgage payments), maybe all the money should be piled in one account, from which all expenses are paid and the devil take the hindmost.

This would have the dual advantages of making me feel a lot less broke and of massively decomplicating bookkeeping.

On the other hand, it would also have the huge disadvantage of making me feel a lot less broke. Whenever I feel flush, I tend to think I can afford this little luxury and that little unnecessity. I would be buying clothes and furnishings and expensive take-out meals right and left if I thought I had 16 grand at my easy disposal.

The $9,300 in long-term living expenses is the relict of the $20,000 of incidental savings that was loafing in the bank at the time I was laid off the job. Since last fall, I’ve been drawing it down to live on, supplementing Social Security with enough to make ends meet during the times when no teaching income happens and in fact making it possible for me to dedicate all my net teaching pay to building up a large cushion in the joint mortgage-payment fund. At a spending rate of about $1090 a month, that fund will last until almost the end of 2013, at which time I’ll have to start taking drawdowns from retirement savings. That assumes that I’ll replenish it at the end of this summer with about $3,000 from unused teaching income, with about $2,500 from the final RASL payment that comes in next spring, and with 2012 and 2013 income tax refunds comparable to what came in last April. At any rate, sooner or later that fund will go away.

The tax and insurance fund is a manifestation of raw fear: I’m scared to death of not having enough to cover the property tax and homeowner’s insurance on my house. The apparent $2064 in available “daily living expenses” funds is an aspect of the same heebie-jeebies: $1,000 of that is reserved as a “cushion” to cover accidental overdrafts and emergency expenses; so really, only $1,064 is available to cover June expenses. That will jump by a thousand bucks when the Social Security check arrives…but not until mid-June.

The diddle-it-away fund is accrued at the rate of $200 a month and is dedicated to such things as clothing and little decorator items for the house. In fact, that’s where the money to pay for those car repairs will have to come from. As you can see, one truly major hit in the car repair department would do that little savings account in, which is one reason I’m thinking I should draw down some money from a brokerage account and buy a new vehicle. But I suppose that can be delayed until the major hit actually happens. The Sienna is almost worthless now, and so waiting until it doesn’t run anymore won’t make much difference in what I’ll have to pay for a new car.

But…what if I just paid these expenses out of one large fund until that fund disappeared, and then started drawing down enough from the IRAs and brokerage accounts to live on? Wouldn’t the result be the same as covering costs out of funds that are dedicated for living expenses, for small indulgences and small emergencies, and for tax and insurance? Wouldn’t life then be a great deal simpler?

I don’t know. Really, experience shows that, at least casa mia, spending expands to fill all available funds. If I didn’t have a clear vision of how much really had to be exempted from routine spending to cover taxes and insurance, I could easily blow that money at Pier One, Willams-Sonoma, and J. Jill. I would quickly go through the diddle-it-away savings, imagining that there was always at least a couple hundred bucks sitting around to spend on “wants,” not just “needs.”

But still. It is a nuisance. And having only enough in the month-to-month living expenses account to just cover the costs of running the house, buying groceries, and running the car does make me feel like I live on the edge of penury at all times.

That may not be a bad thing. When I can no longer teach, the fact is that the amount I can safely draw down from savings will, when combined with Social Security, just barely cover living expenses. Without the teaching income, drawdowns not only will have to cover my living expenses, they also will have to pay my portion of the mortgage. If I get used to living better now, having to pull back at that time, when medical bills will be even higher than they are now (they easily exceed the 7.5% of gross income required to make them tax deductible, and there’s nothing yet wrong with my health!), is likely to be very uncomfortable.

Better to stay accustomed to living very frugally because I imagine I don’t have enough than to hit a brick wall when the time comes that I really won’t have enough. That’s the reasoning, anyway.

At any rate, things are about to get a lot better, at least for the nonce.

Thanks to the two summer courses I managed to score, enough cash will flow in to cover base living expenses this summer. Last summer, I simply did not have enough to pay the bills without biting deeply into savings. This year, all that has changed.

Moving fall 2010 and spring 2011 teaching income into the joint mortgage-paying account, combined with negotiating a lower payment, created enough of a cushion in that cookie jar to cover an entire year of payments. Should anything happen to one of us, the other one will have plenty of time to figure out how to cope.

So, I can quit over-funding that account. This summer, none of the teaching income will go toward the mortgage, and in the fall, instead of moving everything I earn over there, I’ll start paying only my portion of the monthly mortgage bills, which is less than teaching pays (when it’s paying).

That will leave a little of each paycheck in my checking account. While it’s not a lot, it’s still enough to make things a lot less tight. And one month’s pay will handily cover the mortgage costs for the December-January winter break, when again no teaching money will be coming in.

This assumes no increase in teaching income—a safe assumption, since aduncts never get pay increases. Not bad, considering that thanks to increases in Medicare and Medigap premiums, my regular nondiscretionary bills have gone up by $194 a month.

If I put that extra money from teaching (net after paying the mortgage) into the long-term survival cookie jar, I could extend the life of the survival fund by about six and a half months (assuming I get the same number of courses next year as I’ve had this year). That would delay drawdowns from retirement savings well into 2013.

After that cookie  jar is empty, if I’m still teaching I could use the extra teaching money to minimize the amount I’ll have to draw down from savings.

On the other hand… In 2013, I’ll be almost 70 years old. Not likely I’ll still be able to continue teaching then. I might make it through 2014, but it’s a long shot. The college doesn’t need to hire long-in-the-tooth retirees to staff its comp courses, given the hordes of unemployable English Ph.D.’s littering the landscape. Nor, probably, will I still be competent to ride herd on packs of 19-year-olds.

So, when I consider whether I could just use the extra money from teaching to engineer a slightly more generous lifestyle, I come right back to this hard fact: when the job ends, I’ll have to go back to living like an anchorite.

And if I’ve accustomed myself to a more generous lifestyle, that won’t be easy.

The cookie jars, in that light, serve a purpose: they ensure that I don’t get used to living in a style I can’t afford for long.

Image: American Bisque cookie jar in the shape of a rocket ship, ca. 1960. Artist’s name not given. Creative Commons Attribution-ShareAlike 3.0 License.