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Money management

KISSing the Bookkeeping

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Recently Money Beagle put up a post ruminating about whether his bookkeeping system, which entails subtracting earmarked funds against net worth, is maybe a shade on the overcomplicated side. I’ve been thinking the same thing about my own baroque shekel-counting schemes: this stuff is getting out of hand! As one of MB’s readers remarked, it may be time to apply the KISS principal: Keep It Simple, Stupid.

Bank accounts grow like topsy around this place. Right now I have four personal bank accounts, a joint checking account with M’hijito, a business checking account, and a PayPal account for the business. To keep track of credit-card charges, I use yet another spreadsheet. Then there are the spreadsheets for the budget: one for monthly nondiscretionary expenses and one for discretionary spending. Taken together, these little fellows have spawned eight spreadsheets for me to keep up-to-date.

These were relatively easy to handle in Quicken, because Quicken links accounts so that when you make a transfer from one to another it will automatically register the transaction in both accounts, and because it’s very easy to reconcile an account in Quicken. But now that I’m keeping my books in Excel, reconciliation is an old-fashioned headache, and transfers require me to manually debit one account and credit the other. It doesn’t sound like much extra work, but when you have to do it, you find it’s easy to lose track of stuff. One already has enough pains in the tuchus in one’s life without having to deal with some more.

How to decomplicate this?

Well…unclear.

In the first place, at the time I was laid off, I had a $14,000 emergency fund, which I stashed in my checking account and used as a “cushion,” ensuring I would never overdraw the account and eliminating the need to keep track of it someplace else. Since the market had crashed with a resounding thud, I really didn’t want to invest this money, because I was afraid of losing even more than the $180,000 that had already gone down the toilet.

After a difficult year of trying to live without pulling down anything from the remnants of my life savings, the market has pretty well recovered and savings are nearing their former state of normalcy.

So, in the fall I let my financial manager know I could not continue to live on less income than my base expenses and I would have to start taking a drawdown from investments. He suggested that instead of incurring a taxable event each month, I should use the after-tax money in the emergency fund, since in reality there’s plenty of money in taxable savings to cover emergencies. So I’ve been using about $1,100 a month of that 14 grand to supplement Social Security, providing enough to pay the bills before the unpredictable and unreliable pay from adjunct teaching comes in. To manage this, I opened a tiered money-market checking account to hold the amount remaining from the original 14 grand; from that I disburse the $1,100 to regular checking once a month. I figure this fund will be exhausted by September.

Adjunct teaching pay has to go to cover the mortgage on the downtown house. My initial plan was to transfer only enough to cover my share of each month’s payment to M’hijito’s and my joint checking account, which exists to hold cash for the mortgage. To keep from diddling it away on daily expenses, I started stashing teaching income in the money market account. Obviously, though, to keep track of those two items—the fund I was now depleting for living expenses and the money for the mortgage—and ensure I didn’t accidentally spend some of one fund on the other purpose, I needed another spreadsheet, one that would keep track of the mortgage payment fund. Now we’re up to nine spreadsheets. Make that ten: there’s one tracking investments, too.

Then something over $11,000 came in from the insurance company to cover hail damage. This money had to be carefully sequestered, because if I diddled it away there wouldn’t be enough to pay the swarms of workmen. Reluctant to open yet another account, I stashed it in the money market account, along with the mortgage fund and the dwindling cost-of-living fund. This added to the potential for confusion exponentially, requiring yet another spreadsheet.

Meanwhile, the bank account holding the self-escrows for annual tax and insurance payments (I have to set aside $325 a month to cover property tax, car insurance, and homeowner’s insurance) also held the summer stipend I got for developing the online course last year. The summer money would, I hope, carry me through what I expected would be four months in 2010 with less income than outgo (it devolved into five months, but that’s another story). There’s now just enough summer money left (if my arithmetic is right) to cover half the cost of the new pair of prescription glasses.

Okay. That’s the “system” as it stands. Is there a way to decomplicate this system?

Now that we have a permanent loan modification, it’s clear that the amount I’m earning during the academic year will more than cover a full year’s mortgage payments. The departmental chair has assigned me two sections to teach next summer, the proceeds of which will be gravy.

So, New Plan #1: transfer 100% of September-May teaching income to the joint account as it comes in. Let M’hijito figure out how to allocate it, with his share, to cover the mortgage. Use the summer pay (June-August) to cover the extraordinarily high costs of living in Arizona during a 115-degree summer, and, for a change, actually run the air-conditioning when typing on a keyboard will raise a sweat.

New Plan #2: At the end of each month, transfer any money left from that month’s income into the savings account for discretionary spending.

These two strategies will hugely plump up monthly savings, which is used for things like clothing, car maintenance and repair, and house repairs. In the winter, there’s often $100 or so left; in the summer, a fair amount should remain from the teaching income—possibly enough to add up to around $3,000, plenty to buy clothes, keep the aged car running, and cover small emergencies.

Decomplicating benefits: Moving all academic-year teaching income directly into joint checking eliminates the need to keep track of how much of the money-market account’s balance should be held aside for the mortgage. That takes one moving target off the field. Transferring whatever remains in checking at the end of each month allows me to see, at a glance, what’s in savings to cover unplanned expenses.

Once the glasses are paid for, all that will remain in the Tax & Insurance account will be dedicated fully to paying tax and insurance. This will decomplicate another spreadsheet; here, too, the bottom line will show how much is available to cover those exorbitant costs.

And once the bills for the roof, the new air conditioner, and the exterior painting are paid, all that will remain in the money market account is the balance of the survival savings. When that’s depleted, the money market account can be closed. w00t! A whole spreadsheet gone!

By the end of the summer, here’s how I expect this to look:

Still complicated, but at least it shouldn’t take 10 spreadsheets to keep track of it.

Speaking of those spreadsheets, why do I need ten of the damn things? Right now I have two workbooks, one tracking cash flow (in all those bank accounts!) and credit-card charges and one tracking the budget, along with various schemes, projections, and retrospective summaries. Why am I doing this?

I think I’ll collapse these into a single workbook, leaving all the fevered calculations in a separate file. This will allow at least allow me to move back and forth between cash flow and the budget, rather than keeping two files open in Excel to enter routine transactions. This will reduce the number of pages where I regularly enter numbers from sixteen to five. That is, from these (some of which have been defunct for over a year!)…

to this:

And that, I suppose, is as close to minimalist as I’m gunna get.

Whence Bag Lady Syndrome?

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At home in the bus stop

I suffer markedly from bag lady syndrome, the haunting sense that one of these days I’m going to end up living on the street. Sometimes I wonder where the hell it comes from. Really, there’s enough in the bank to support me without my ever having to lift a finger in paying work again…but I do lift fingers—all ten of them—in that cause. What am I so scared of?

Late last summer, Sandy L wrote a post at FirstGen American that threw some light on the issue: she suggests many women are subjected to verbal abuse that leads to negative self-talk. We convince ourselves that we’ll never amount to much, because we’ve been told so. Often.

Although my father was not a drinker like Sandy’s, I spent my childhood and early adult life watching my father manipulate my mother by exploiting the fact—and it was a fact—that she couldn’t take care of herself financially. When, as he did every now and again, he would tell her that if she didn’t quit spending “his” money he was going to leave her, he was abusing her.

Now, it’s true that neither of them would have seen it that way. My guess is, they both would have regarded the basis of his threats as ordinary reality. The most she ever earned, working full-time, would not have paid our rent.

Like most women in her generation, she couldn’t support herself on whatever tiny salary she might have been able to earn. To this day, it’s a fact that a large proportion of elderly women end their lives in poverty—even if they spent most of their years in the economic middle class. As the Great Recession was about to descend on us, among women 65 and over, 37 percent of those who were divorced or separated were living in poverty; 28 percent of widows lived in poverty; and 22 percent of single, never-married women lived in poverty. Think of that. Over a third of divorcees, over a quarter of widows, over a fifth of singletons are spending their “golden years” dirt-poor.

It explains a lot about why I live in fear of ending up in a campsite beneath the Seventh Avenue Overpass. I was brought up to think women—particularly me—can’t take care of themselves. As attitudes go, it’s a very difficult one to overcome, particularly when the reality of senior women reinforces it.

My father treated me like an idiot. He made it clear he thought I was stupid, strange, and incompetent. A Phi Beta Kappa key, a doctorate, and three books published through high-quality presses did nothing but confirm his suspicions.

And yes, I was a weird little kid. Like other girls in my generation, I was brought up to be a housewife and urged to get training as a secretary, “just in case” I should someday need a job if the real breadwinner was incapacitated, died, or abandoned me and his kids. My craving to grow up to be an astrophysicist was beside the point; “you can,” I was told, “always have astronomy as a hobby.”

How fortunate I was that his influence was counterbalanced by the women on my mother’s side of the family! Though I don’t buy into Christian Science, the worldview to which my great-grandmother and great-aunt subscribed, nobody espouses “positive thinking” more powerfully than do Christian Scientists. These two, who took in my mother as a teenager and partly raised her, lived together in a pretty little Berkeley foothills bungalow after my great-grandfather died. During the process of his dying, the existence of a long-term mistress in San Francisco came to light. As you can imagine, my great-grandmother, affectionately known as “Gree,” was in no hurry to remarry after having spent a lifetime laboring as a man’s house servant, and I suppose the effect must have reverberated with her daughter, my great-aunt.

Gertrude,  said great-aunt, lost her young husband in the 1917 flu epidemic, shortly after her son was born. She became an executive secretary (today the position would probably be a middle manager) at Crocker-Anglo National Bank, and from then on her pay, which must have been fairly modest, supported her, her son, and her mother in a pleasant home and in a cozy enough lifestyle. She sent her son to UC Berkeley and had enough to help him purchase land and build a beautiful house in Kensington, overlooking the San Francisco Bay. He became a vice president of Standard Oil.

They didn’t live like Queens of Sheba, but they never wanted for anything. They each lived to the age of 94, and at no time could they have been said to live in poverty. When, late in her life, I asked Gertrude if she had ever thought of remarrying, she gave me a funny look and said, “Why on earth would I ever want to take care of another man?”

The object lesson I took away from Gree and Gertrude was that you can think yourself sick and you can think yourself well: positive thinking in fact is very powerful. So is negative thinking. You can convince yourself that you should be afraid, be very afraid, and you can convince yourself that you are or easily could be helpless.

Until my generation a lot of women were socialized to think like this. It was objectively true: most women were not allowed into the workplace and could not earn enough to support themselves. When, in 1966, I went into a bank and applied for an opening in its management training program—the very same kind of job my male classmates in all majors were landing with no problem—I was told the bank didn’t hire women into their management training program, but I’d be great in the secretarial pool.

The feminist movement of the 60s and 70s changed things for all American and European women. Because of it, the world is a different place for women. But in some respects, things haven’t changed so much. Even women of considerable wealth and accomplishment, the likes of Lily Tomlin and Katie Couric, have admitted to bouts of bag-lady syndrome. In the MSN Money article that reveals that gem, Certified Financial Planner Kathy Boyle observes that this widespread fear is not altogether unrealistic:

“Being single costs 80% that of a couple, and women are seven times more likely to be single and live six years longer. . . Given a 50% divorce rate and that the average age of widowhood is 56, there’s probably good reason to be concerned.”

I’ve never succumbed to the symptoms described in this article—refusing to think about finances or feeling unable to make a decision. And I don’t stash all my assets in low-income financial instruments (to the contrary, I’ve taken some breathtaking risks…). But I do worry a lot about money, sometimes to the point of obsessiveness.

Just as you can’t deal with money by pretending it’s not there or it doesn’t matter, so you can’t deal with it by obsessing over it. Best thing to do is get the advice of a trustworthy financial advisor, learn what you can about budgeting and wealth management, make a few basic decisions, and then revisit the issue no more than three or four times a year.

One night as I lay awake worrying over money, shortly after I had divorced my husband and set out on my own, I found myself asking the question, “Can I do this?”

Those are the words that coalesced in my mind, there in the darkness.

Then I heard my great-aunt’s voice, just as clearly as if she were sitting in the room. She said, “Of course you can, my dear.”

So it proved to be.

Ladies. Of course you can!

Image: Mikescottwood11. A chronically homeless individual inhabiting a bus shelter in Porter Square. Creative Commons Attribution 3.0 Unported license.

Retirement planner yields interesting discovery

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If you’re nearing retirement or thinking about how you can escape into early retirement, check out Vanguard’s retirement planning tools. You don’t have to be logged in to use these things. Go to https://personal.vanguard.com/us/home and click on “Planning and Education”; from there navigate to Retirement Planning > I’m Planning to Retire > Evaluate Your Expenses and Income. Entering the site through this pathway takes you past a number of other options, including some for people who aren’t yet on the verge of retirement.

For example, you can create an investment plan, plan for college, learn the basics of estate planning, and discover how to manage your portfolio with an eye to tax savings.

But since I equate the coming layoff with enforced retirement (as in please don’t throw me in the brier patch), my exploration soon took me to Vanguard’s paired worksheets, one that allows you to estimate your expenses and one that helps you estimate your retirement income and figure whether it will support you.

To my amazement, Vanguard’s machine-generated planning estimates are more optimistic than what Excel  has been telling me. As you may recall, I’ve figured I might have to draw down as much as 6 percent of total savings to get by; at best, 5 percent was a likely number.

Because Medicare will cost about 12 times what I pay for health insurance now and because I’ll have to pay my share of the mortgage on the downtown house out of cash flow, my monthly living and emergency savings costs will rise from the current $2,800 to about $3,275—$425 more than my present take-home pay!

However, even with that stunning expense figure entered in the retirement income worksheet, Vanguard tells me that the amount I’ll have to draw down from savings will be only 4.3 percent of the total.

I can’t account for the difference. At first I thought it had to do with the way taxes were figured—Vanguard’s income worksheet automatically generates an estimated tax liability based on the tax rates you provide—but punching a few numbers into a handheld calculator shows that not to be so. Unless I’ve made a mistake in entering expenses, it looks like Social Security, part-time teaching income, and a drawdown of a little over 4 percent will just about cover the average monthly cost of living. Excel shows an average monthly cost of $3,306; Vanguard’s comes to $3,275, not a significant difference.

Either of these figures requires me to avoid extraordinary expenses at all costs, something I haven’t succeeded in doing for lo, these many months. One crazy cost after another—some optional, some decidely not—has overrun my budget three out of the past five months, and probably will overrun it this month, too. Last year I ran in the red five out of twelve months; once by only $37, but still…

If we think in terms of the whole year rather than focusing tightly on given months, last year’s total black ink came to $1,397.37; red ink totaled $726.23, leaving me $671.14 to the good at the end of the year. However! Last year’s discretionary budget was $1,500 a  month. The amount I entered in Vanguard’s worksheet comes to only $1,265—and that includes a $500/month allowance for extraordinary expenses. It’s highly questionable whether I can live on that: last year’s expenditures averaged $1,440 a month.

Starting in January, I cut the budget for nonrecurring expenses to $1,200 a month. As of June 20, the end of the last budget cycle, I was $681.89 in the red: an average of $136 a month! That’s after The Copyeditor’s Desk covered every expense I could justify as a business cost.

So it appears that in retirement, unless Medicare and income taxes are less than I think they’ll be, I will not be able to cover every expense that comes my way. I’ve got seven months to get the extraordinary spending under control.

Image: Micky, Hammock on Beach; Wikipedia Commons

Money market drops below a dollar a share

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Here’s a little gem in today’s International Herald-Tribune: the Primary Fund, part of one of the largest and oldest money market funds around, has dropped its share value to 97 cents.

Now a loss of three cents a share isn’t going to break any of us up in business. But…well, heck. Dunno about you, my friends, but being the cheapskate that I am, I don’t want to see even three pennies go away. I have a fair amount sitting in Vanguard’s Prime Money Market, cash saved to pay off the Renovation Loan and to double as an emergency fund. Since it’s not invested in stocks or bonds, it could just as easily lay fallow in the credit union as at Vanguard. At the credit union, it’s insured.

So I called Vanguard this afternoon, where I learned I was far from the first to harry the call center employees with fussy questions about their money market funds. The young woman I reached assured me that “Vanguard is very confident” (uhm…is this a statement with meaning?) and that its money market funds are not invested in any instruments presently known to be at risk.

O.K.

I guess.

Path of least resistance is to leave the money at Vanguard. Path of medium resistance is to write a check on the fund and pay down the Renovation Loan by ten or eleven grand (and maybe plant some vegetables in the backyard to cover for the proposed emergency). Path of most resistance is to move everything over to the credit union, whose arcane rules assign a different return to each of the half-dozen different accounts it offers and so will require some figuring out.

Hmmm… Bogle, can your successors be trusted? Probably. It’s at least a strong maybe.

Do I want to pay off that loan right this minute? Nope. With the economy melting down around us, I want cash.

Am I making a larger pittance on cash savings at Vanguard than at the credit union? Yes. But only if Vanguard’s Prime Money Market Fund never breaks the dollar.

Looks to me like the path of most resistance could be the best way to go: identify the best-paying CU account (money market: 1.88%; CD: 2.23% for 3 months to 3.92% for 5 years; savings: 5% up to $1,000 and .75% over $1,000) and move the money over there.

Good grief. Just look at the complexity of those options. Makes me not want to think about it! Gut instinct, though, suggests I’d make a little less at the CU but sleep better with savings insured up to $100,000. The wee dividends don’t matter, but that deposit insurance sure does.

Today while the blossoms still cling to the vine…

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Cassie the Corgi decided the crack of dawn was too late to start the day, and so began campaigning to spring to life at ten to five. Gronk! After wringing her out and finding myself still being importuned to get up, I put her on the bed, in hopes that would quiet her down. You don’t put a dog on the bed when you do that. You put a 23-pound puffball of fur on the bed — one that wriggles. So…we’ll be washing the bedding this morning, among other activities.

Precious few blossoms are clinging to vines here at the tail end of summer. When the power went out the other day, it shut down the irrigation timer, and so quite a few of the blossoming critters in my yard are parched. The weather has been surprisingly balmy this year: only a few 115-degree days. We’re supposed to have a heat wave this weekend, with temperatures predicted at around 110, although just now it’s quite lovely outside.

Thank goodness we get an “extra” paycheck this month! Last week’sfurniture-buying exploitoverspent my Diddle-It-Away savings by about $200. Truth is, the money could come out of ordinary cash flow, but that maneuver would engross this month’s payment into the Renovation Loan paydown fund. A couple hundred bucks out of the paycheck of the 29th will do no harm.

I vacillate between taking the $9,500 now accrued in the paydown fund and applying it to principal right now and keeping it in savings to double as emergency fund cash. One thing to be said for paying it toward principal right this minute is that it will keep me from spending it on anything else. Another thing, of course, is that it will cause a much larger chunk of the regular monthly payment to go toward principal, which would be good. On the other hand, with the economy as iffy as it is and the university busily laying off its employees, I hesitate to let those dollars out of my hands.

This is gunna be a hectic weekend. I’ve got to hand over an indexing project to my sidekick for proofreading no later than Tuesday noon; at the moment two chapters and an endless series of narrative endnotes remain to be marked up, and then I have to type, format, and organize the entries. That job alone will take at least an entire day. The author is paying us a premium to do a rush job, so in fact we each will earn more than enough to pay the extra $200 needed to cover the entire furniture adventure. But horrors! It requires me to (shudder!)work! Meanwhile, food needs to be purchased, laundry laundered, floors and furniture cleaned, pool tended to, yard plants rescued….where will the time come from?

TheHealth & Wealth rafflehas had its first two drawings. So far the organizers have not awarded me the million work-free dollars to which I feel I am entitled. One more drawing is slated for September 26. Surely at that time the money will be deposited to my checking account.

And so, to work.