Coffee heat rising

What I Learned During the Year of Penury

Well, assuming all goes as planned (big assumption, I know!), according to my budgeting software this year I should see a combined earned and passive income of about $52,000. That’s only $13,000 short of my late, great full-time editorial salary, and $8,500 more than I earned teaching full-time. And it’s a far cry from what crossed my bank account’s threshold last year, about $28,000.

I learned a lot of things by trying to live on 43 percent of my pre-layoff salary, very valuable things:

If you’re not in debt, you can live on a lot less than you think you need.
If you are in debt, you’d better have a good stash of emergency savings to cover payments.
You can live frugally and still be reasonably comfortable, most of the time.
No matter what anyone says about the alleged tax advantages of carrying a mortgage, when you’re unemployed a paid-off roof over your head is your second-greatest asset.
Your third-greatest asset is a paid-off car.
Your greatest asset is good health, should you be so lucky to have it and keep it.
Beans, rice, and pasta are splendid things to eat.
Chard growing in the garden goes a long way toward putting a nice meal on your table.
A stand of lettuce helps, too.
With careful planning, it’s possible to stay out of stores for surprisingly long periods.
Raising the deductible on your homeowner’s insurance comes under the heading of penny-wise and pound-foolish.
When budgeting for irregular income, it may be good to create longer budgeting periods than a month. At times, two- or three-month budgets may work more effectively.
When money is tight, that is when every unplanned expense in creation crashes down on your head.

Despite fears to the contrary, I managed to stay in my home and live without too much deprivation by budgeting carefully, stockpiling food, conserving energy, and putting less money in savings.

It’s surprising how little it takes to get by when you’re not working. I would have done OK on even less, had I been inclined to shop in thrift stores and low-end grocery stores. It’s also clear that I could have cut living expenses still further by moving out of my present home, which has relatively high operating costs, and going to Sun City, where taxes and insurance premiums are significantly less.

What kept me in my home was not having a mortgage. Some years ago I decided to defy conventional wisdom by paying off the mortgage I had on my last house. It occurred to me that each monthly mortgage payment I did not have to pay represented a return on investment of exactly that much. I owed about $70,000 on the house and was paying about $860 a month, which, when the alimony ran out, was more than half my monthly take-home pay. Less than $200 of the PITI comprised tax and insurance. My investments earn about 7 percent; 7 percent of 70 grand is $408. So despite the protestations of two investment advisers, it seemed to me that little would be lost by investing a chunk of savings plus an inheritance in residential real estate.

Over a ten-year period, the house’s value more than doubled, allowing me to buy my present house, a somewhat nicer place in a quieter part of the neighborhood, and pay for it in cash.

If I hadn’t owned the house outright, I can’t imagine what I would have done last year. Although the house has dropped $35,000 in value since I bought it, you don’t realize a loss until you sell, and because I didn’t owe anything, I wasn’t forced to sell or default. There’s simply no way I could have paid $10,320 out of a $22,000 net income and survived. It was extremely lucky that I made that choice all those years ago, and that I’d managed to accrue enough savings to pull it off at the time.

So, I learned that a smart decision can pay off a long time after you make it. And I learned that it is not a bad idea to pay off a residential mortgage.

Having a lot of savings rescued me from the potential disaster posed by the mortgage on the downtown house. I used the tax-free portion of a whole life insurance policy to pay my share of the monthly payments in 2010. Because we managed to get a temporary loan modification, a couple thousand dollars of that remain to help defray the 2011 PITI.

There were some difficult moments. The cost entailed in falling and hurting myself was a bit startling. It would have been even more startling had I consented to surgery that would have caused the loss of an entire semester’s pay. Living through the summer with the thermostat turned up so high that my friends wouldn’t come inside the house was uncomfortable, and I’ll be happy not to have to swelter like that come next July.

When I would run out of cash, not spending a dime for a week or ten days at a time was a challenge. And the summer months, during which income did not cover base expenses, were nightmarish. Even though I’d saved enough from teaching income, theoretically, to squeak through May, June, July, and August on Social Security, by the time fall semester started I was running out of money. Classes started sometime after mid-month, we didn’t get paid until the last of the month, and that was only a partial paycheck. The summer stipend didn’t help much, because most of it wasn’t disbursed until long after I needed it. Being paid for only two classes during the first eight weeks of the semester didn’t help things much, either.

By December, the money pile had not recovered from the effort to get through three and a half months with less income than outgo. Fortunately, though, the stock market had recovered. The strategy of delaying a drawdown from savings had worked, and my IRA and brokerage accounts had returned to something close to their pre-Crash levels. At that point, my financial adviser and I decided it was safe to start a 3 percent drawdown, which, until inflation kicks in, will guarantee enough in the checking account to pay the bills, exclusive of earned income.

In retrospect, I learned that I would have been better off if I’d put all my summer survival savings into my regular cash flow account at the end of spring semester, rather than setting the money aside in a savings account and doling it out to myself in monthly “paychecks.”

Instead, I should have treated the summer as one three-month budget cycle. This cycle should have contained three months’ worth of expense budget: three months’ worth utilities, insurance, etc., plus three months’ worth of spending money. On the credit side, it would have included all my spring-semester survival savings plus projected Social Security. Subtracting debits from the summer-long total, not from one month’s worth at a time, would have allowed me to see at a glance how much remained to get by on until salary started again. This would have relieved a great deal of worry engendered by fretting about how to get by from month to month. I still would have been in the red at the end of the summer…but I probably would have stressed about it only once, instead of three or four times.

It really would have helped not to have had a $165 palm tree trimming bill in June, a $30 copay to the Mayo in July, a $105 electrician’s bill in August, and a $120 plumbing bill in September. I suppose that when you foresee a financially tight time coming, you should add about $150 to your regularly budgeted expenses to cover Murphy’s Law.

The economy is improving. Eventually most of us will get jobs again, although probably not at what we used to earn. The Fall of the Bush Economy is not the last recession we’ll see. There’ll be more, and they may be worse. By way of preparing for those, I think, the take-away messages are as follows:

Live within your means, even in good times.
Within your means, live frugally, even in the best of times.
Build savings. Don’t limit savings to your IRA or 401(k).
Distribute savings wisely between cash and investment accounts.
Pay off debt. That includes mortgage debt.
Avoid accruing new debt. Use savings to help pay for big-ticket items in cash.
Take care of your health.
Expect the unexpected.

Where the jobs are…and aren’t

Tina, editor par excellence, sends along this interesting (not to say alarming) article from NPR’s Planet Money. Even though the recession is officially over, as NPR’s Jacob Goldstein points out, that means rather little for the suffering quotient. Eight million jobs have disappeared from our economy since December 2007, most of them in manufacturing and construction.

Many of those jobs will never come back. It’s hard to believe sectors like retail, real estate and finance, and transportation can absorb eight million workers, many of whom are tradesmen and not white-collar workers. The feds are hiring, but only because the federal government is spending itself blind trying to beat back a full-out depression. Compared to the number of jobs lost, the number of jobs gained in federal employment is a drop in the bucket.

Something called “private education” is growing, possibly, Goldstein speculates, because during hard times people go back to school in hopes of retooling for different occupations. But let’s consider what “private education” is: presumably it means proprietary schools. These outfits, as we’ve seen, will give you a degree without much education, and pick your pocket in the process. What they’re turning out would be hundreds of thousands of graduates with no better hopes of landing a job than they had before they started. The quality of such training aside, if eight million jobs are gone, where are those newly trained workers supposed to get hired?

The only sector that appears to show genuine growth is health care. We’re told this is because of the graying (and increasingly doddering) of America. As the baby boom ages and boomers’ health fails, demand soars for nurses, doctors, medical technicians, and the entire vast infrastructure that supports them.

Think of that.

We’ve gone from a nation that produces things to a nation that takes care of sick old folks.

Not that there’s anything wrong with taking care of sick old folks. Just that…well. It’s ominous.

Image: Men standing in a soup line. Franklin D. Roosevelt Library. Public Domain.

How’s the economic stress level in your parts?

Here’s a new money tool that’s entertaining or frightening, depending on where you live, and always interesting. The Associated Press has put together an interactive map of the U.S. measuring economic stress nationwide, by county. Mouseover your home county (or anyone else’s) and you see a “stress” index based on unemployment, foreclosure, and bankruptcy figures. The higher the stress index, the harder times are in any given place.

The thing is fascinating. As bad off as things are in Michigan, what with the struggles of the automotive industry, things generally are far worse in California. The Imperial Valley has an unemployment rate of 27.7 percent! That plus a foreclosure rate of 4.28 percent and bankruptcies at 1.14 percent add up to a stress index of 31.58, making my  home county look good, with a mellow stress index of 14.45. It’s interesting to observe the trends in various regions; the entire midsection of the country is relatively less affected by the deprecession. Possibly because fewer people live there? People in North Dakota are too busy shoveling snow to worry about the economy?

How does your part of the country measure up?

Image: Map of USA Showing State Names. Wikipedia Commons. GNU Free Documentation License.

Odd$ and End$

First crack out of the box this morning, it was off to the credit union at the (relatively) nearby West campus, there to hand-deliver 15 pages of paperwork.

Well over a month ago, M’Hijito and I had asked to negotiate a loan modification of the downtown house’s mortgage. They asked for evidence of every deep breath we’d taken within the prior 30 days, which after much thrashing around we scraped together into a big digital pile and e-mailed to them.

Well, this mound of debris reached the loan lady one day after the credit union outsourced its loan management. So now, instead of the six-day turnaround on a decision we had been promised, we were told there would be a one-week “blackout” on all information coming from this outfit, and that after that…they had no idea what would happen.

Weeks went by: nothing.

So I called Loan Lady the day before yesterday and asked her voicemail if I was correct in assuming that silence means “no deal,” since we would need to figure out how to pay the mortgage or decide whether we should take a walk, given last month’s munificent earned income of $161.

Within hours, comes a call from Higher-Up Loan Lady, who says that the credit union is “taking some loans back in-house,” among them ours, and would we please send the entire mound over again, only add written proof that I actually was canned and update several other documents, now gone stale. Translation: “we lost your documents.”

Of course, the fuck-you-very-much announcement on ASU letterhead was not in digital form. The new printer/scanner refused to scan it. So that made it impossible to e-mail the new pile of junk, which took a good half-day in the collecting and updating. The new printer/scanner doesn’t have a FAX, and even the old printer/scanner/FAX machine would not talk to Cox’s modem and so would not have sent a FAX anyway. She suggested I either mail it (about $2.00 worth of postage) or take it to the credit union and get them to FAX it.

I chose the latter. This ensured that someone there actually saw to it that the documents went through, and they gave me the printout of confirmation showing the stuff reached Higher-Up Loan Lady. The cost of the gas to drive over there—about $2.53—was probably as much as or more than the cost of postage, but at least it ensured that the pile of paper didn’t disappear again.

Despite the annoying waste of time and gasoline, this junket did allow me to take advantage of a serendipitous occurrence of the Money Happens phenomenon.

A few weeks ago, a client gave me a $25 gift card to Fry’s grocery stores, a nice little under-the-table lagniappe. I never shop at Fry’s, because the two stores in my general vicinity are located in pretty threatening neighborhoods. After the manager of the restaurant in the Fry’s shopping center at 19th and Glendale was murdered by thieves, I quit going there. On the way to ASU West, though, I passed a store in a working-class neighborhood that looked pretty safe, and so decided to spend the money there.

Not bad. For $20 I nabbed milk and eggs with which to make some excellent biscuits for breakfast, a small stoneware bowl of the sort I’ve been needing for a while, a bag of chunk hardwood charcoal, and some produce. The pork, much needed for Cassie, was ten cents a pound higher than Safeway’s, so I passed on that. But I did find a pair of kitchen tongs with handles, not those chopsticks on a spring that are currently popular. Real tongs have have turned into a hard-to-to-find item, as I discovered when my ancient pair wore out.

Yesterday I had a meeting that took place after I finished teaching in the middle of the afternoon. Because I couldn’t afford to have lunch out even if there were something available on the campus that I’d want to eat, by the time I stumbled in the door I was dead starved. It was evening by the time I’d fed myself and the dog taken the dog for the required doggy-walk and added more acid to the pool. Then I had to wrestle with the mountain of paperwork (above). After that was ready to go, I

was sooo tired I sat down to relax by working on a pencil drawing I started yesterday. The next time I lifted my head, it was quarter to eight and I was an hour late to choir practice.

Started to climb into the car to race down to the Cult Headquarters, but with the garage door open and the engine on, I realized I  just couldn’t do it. So went back in the house and missed practice. Now I’ll be in the doghouse again. Oh well.

My beleaguered former RA, who lives just a few blocks from me, was burgled last Sunday. They stole all her jewelry—most of it sentimental gifts from her mother with little monetary value—and her husband’s laptop. {sigh} This neighborhood is under siege from the cockroaches who inhabit the tenements across 19th Avenue. Burglaries are as common as falling leaves around here. I’m almost inclined to go back up to the pound and see if that fake “bloodhound” is still there. Whatever he was, he was no bloodhound. Neither did he appear to have any pit bull in him. But he was big enough to mean business, or at least to look like he might.

I don’t know. I can’t afford another dog. Just feeding me and little 25-pound Cassie is a challenge. On the other hand, I can’t afford to be burglarized, either.

Speaking of the neighborhood, when I got home late yesterday afternoon a carpet cleaning crew was over at Biker Boob and Bobbie McGee’s house, overseen by a hulking bruiser of a man swaggering around in a wife-beater. Turns out said bruiser was a great big, charming gay guy who is a Realtor. He strolled over to introduce himself and say Boob and Bobbie are history and he’s putting the house on the market. He’s asking $239,000, substantially less per square foot than the $285,000 our local Real Estate Empress is trying to get for the same model two blocks to the north and west. He said the place is in pretty bad shape and needs a lot of fix-up.

Not surprising.

As sweet as Queer John was, at one point he had five men living in there with him. (QJ was the original renter, an affable little guy but pretty nuts.) After QJ was chased down in a dramatic pursuit through the neighborhood and hauled off by a team of five cruisersful of cops, he was replaced by Biker Boob and his lady, Bobbie McGee, a raunchy cowgirl given to dumping car trunkloads full of mystery garbage in the big trash bin behind my house and Sally’s. We figured if whatever she was stuffing in there (neither of us cared to tear open the bags to see what it was) couldn’t go into the bin behind her house, it probably wasn’t supposed to go into the city garbage bins at all.

According to Zillow, $239,900 is what the present owner, who lives in upstate New York, paid for that house in 2004. He must figure the market has recovered enough to unload an ill-advised investment. Let’s hope he’s right!

While fooling with the Excel files yesterday by way of cranking the new reports the CU wanted, I made an interesting little discovery.

In January, I only spent $1,698. Multiply that by 12 and you get an estimated 2010 expenditure of $20,376. Optimistic, to be sure—summer power bills will raise that by about $200 a month, adding approximately $800 to the projected total: $21,176.

But if you include the tiny drawdown I’m taking from ASU’s 403(b) plan so as to qualify for the state’s sick leave payment (the net is only $385 a month), you come up with this net income:

“Pension” net: $385 x 12 = $4,620
Social Security net: $1,000 x 12 = $12,000
Net teaching income: $14,400 – 25% = $10,800

$4,620 + $12,000 + $10,800 = $27,420, projected net income

$27,420 – $21,176 = $6,244 positive cash flow for 2010

That’s a far cry from the $1,400 year-end balance I estimated by manually adding up all my projected costs, month by month, and subtracting them, month by month, from projected income (and, during the summer, nonincome).

So far I haven’t been able to account for the difference. I think I’ve included all predictable costs. The $1,698 January expenditure includes the $314 I had to cough up for COBRA, significantly more than either COBRA or Medicare will cost after this. The only thing I can imagine is that my month-by-month estimates of what the community college will pay must be wrong. But they couldn’t possibly be wrong by $4800…that doesn’t make sense.

Time will tell. If the shorthand calculation turns out to be correct, maybe I won’t have to teach three-and-three!


Surviving in penury

Wow, did I get these figures wrong! My take-home salary is far more than what appeared in the original of this post…I don’t know where I came up with a figure of $32,900. I was even sober when I wrote this! Corrected figures appear in boldface next to my original wrong calculations.

Well, it’ll be interesting to see what happens next. In 2010, my gross income will be significantly less than half of what I earn today. Assuming state and federal taxes total no more than 20 percent (a big assumption!), the combined net of Social Security and teaching will be $9,700 ($17,710) less than I net from my salary today. That doesn’t count what I make freelancing, because next year I will not be allowed to earn freelance income. Since Social Security’s rules will limit me from earning a living wage, 2010 will be a year of real penury. It remains to be seen whether I can survive under those circumstances.

By “survive” I mean “stay in my home, eat, keep my dog, and live through a 118-degree summer.”

There are a couple of extenuating circumstances.

I’ll get a chunk of vacation pay that should net out to about $3,965 (assuming GDU doesn’t pull another of its numbers on me, another Big Assumption).

About $1,900 remains in the S-Corporation, after paying for the MacBook. If I can finish the page proofs I’m reading before Christmas, I could in theory push the 2009 drawdown to about $2,200. It probably would be better, though, to delay that job to 2010, so as to leave its payment in the corporate account to cover things like printer ink and computer repairs with nontaxable money. So, let’s say I net about $1,500 from what remains of freelance income.

This will give me a grand total of $28,985 (net, if taxes are not too extortionate) to live on next year. Compare that to my present net of $32,900 ($41,210).

Two strategies may enhance things a bit:

Even though I hope to avoid drawing anything from retirement savings in 2010 (so as to wait and see if investments continue to recover from the crash of the Bush economy), to have the state consider me “retired” so that it will disgorge the $19,000 it owes me for unused vacation time, I will have to draw a few bucks from my 403(b) until such time as the bureaucrat in charge of that program approves me. So the plan now is to draw down $500 a month until we know the sick-leave payment has been approved. That process can take as long as three months, and so I’ll probably have to pull out about $1,500, adding (optimistically speaking) another $1,200 net to the 28 grand.

Now we’re approaching a net of $29,200 ($30,185), which is $3,700 ($11,025) less than I bring home today.

My share of the mortgage on the Luke house will be paid with $10,000 worth of tax-free dividends from an antique whole life policy, giving me a year’s reprieve on having to draw those payments down from savings.

Still…where is that $3,700 ($11,025) shortfall gunna come from?

Well, I put $573 a month into savings right now. That adds up to $6,800 a year. Of that, only $3,900 is nonnegotiable: I have to self-escrow that much to cover the property tax, homeowner’s insurance, and car insurance. So if that’s the only money I set aside, in 2010 I can devote $2,900 to living expenses that I used to put into savings.

So, now I’m only $800 ($8,125) short of the amount I actually spend on living expenses. That, I’m sure, can be managed through frugality and tight budgeting. (Yeah, right! Only if I sell my home and take up residence under the Seventh Avenue Underpass!)

This scenario applies only to 2010. If I have to continue refraining from drawing down savings in 2011, then things will look different. I can earn about $10,000 a year freelancing—in a good year. So the net of teaching three-and-three will come to $11,520 (in the unlikely event that taxes don’t rise  much); the net of Social Security is about $12,000. Add net freelance income of around $8,000, and you get $31,250 ($31,520) as the base net income, not counting savings drawdown, in 2011.

On the surface, that’s not too bad—pretty close to what I’m earning now. (Holy Hell, it’s over ten grand less than what I take home now!) But it doesn’t count the cost of Medicare, eleven times what I’m paying for health insurance today; and it doesn’t count the cost of the mortgage, which on its own represents about 1 percent of my total savings. (I am screwed, screwed, ge-screwed!)

And we have to remember that taxes and insurance will not stay the same. On the federal level, sooner than later we’ll have to pay the cost of repairing the damage done by the past decades of ill-advised leadership. Locally, the state is still a phenomenal $1.4 billion short, even after the Draconian budget just passed by the legislature. If the most basic services are to stay in place—firefighting, police protection (forget services to the sick and elderly poor)—then our dim-bulb legislators must face the fact that they will have to raise taxes. Homeowner’s insurance, too, never goes down; and when I reach the point where I’m forced to replace my 10-year-old car with a newer model, taxes and insurance on that will increase, too.

If my investment advisers are right that my savings will return to something resembling their former glory after a year or so, then I should be able to get by on a 4 percent drawdown…as long as I can dodder into a classroom. (Dream on!) That, of course, will not be forever.

But the day after tomorrow will have to take care of itself. (By then I’ll have starved to death, so someone else can figure out what to do with the day after tomorrow.)

I must have figuredmy income on a 24-period basis rather than the actual 26 pay periods created by PeopleSoft’s hideous biweekly pay scheme, since I bank the so-called “extra” paychecks in savings. Even that is wrong, though: the annual total would be $38,040. What hat the $32,900 figure came out of, I can’t imagine!

Image: Men being served at a soup kitchen. Franklin D. Roosevelt Presidential Library and Museum.

Revanche on the secret joy of unemployment

Today we have a guest post by Revanche, proprietor of one of my favorite PF blogs, A Gai Shan Life. Enjoy!

VH asked me how I’m dealing with unemployment now that I’m well in, and I had to think about it.

Most notably, believe it or not, is the fact that I was laid off almost six months ago and my head has not yet exploded.

It should have, considering the degree to which I obsessed over every possible detail of pending unemployment in the months prior to L-day (all the gory details of which you can find blogged between the dates of July 2008 and June 2009). But it didn’t.

In all my planning and calculating, plotting and planning, résumé-building and interview scheduling, I utterly underestimated the sheer freedom that comes with unemployment.

Not the freedom of just staying at home all day in my pajamas, if I please. [Don’t ask me if that’s ever happened, please. Let me have some dignity.] The kind of nearly spiritual freedom, relief really, that comes of knowing that my time shackled to that job out of a sense of responsibility to provide for my family, to do the right thing, to be grateful for the job I had in this economy, was over. Out of a job though I am, I’m also free of the company and of the kind of people who believed in lying, cheating and scamming. Not my kind of folk.

Flying utterly in the face of my workaholic tendencies, I’ve discovered an odd and unnatural secret of unemployment: if you have some financial security, it can actually be refreshing. Who knew?

Whether or not you know me, that sounds like crazy talk.

I assure you, I haven’t lost my mind. I hate not having a steady, full-fledged income, I hate not contributing to my retirement accounts, I hate that I haven’t deposited money into my savings accounts in massive chunks in oh-so-long. And this time has been filled with working on projects, seeking out challenging employment opportunities and interviewing.

I would be remiss, however, if I didn’t admit that I’ve also discovered the wonders of having the time to travel (New York, San Francisco, San Diego), travel (New York), and travel (Hawaii). I haven’t ever had this kind of freedom to hit the road, I could not have jumped in the car and gone to a friend in need while fully employed, and I haven’t ever been able to take classes without wedging it into 12-hour workdays (before, during or after college). These things are important to me, and without this breather, I doubt that my life plan would ever have allowed for discovering new cities, or the commitment to taking care of ill or grieving friends. And with certain health issues, I can’t tell you how many times I’ve realized I’m allowed to rest instead of forcing myself to face another 18-hour-day despite my body’s pleas for surcease.

The cost of this freedom, all the deprivations of earlier years, was completely worth it. That’s easy to say now because 1) I don’t feel them anymore, and 2) I’m practically living in the lap of luxury now thanks to how I lived before. What’s that saying, “Live like no one else will, so you can live like no one else can”? That little truism is absolutely true. It wasn’t easy being sensible about every penny I spent, and I can’t discount the unemployment income and subsidized COBRA, which have both gone a long way in stretching out my savings as well. But I’m able to look for the next best career step, pay my bills, stay out of debt, and still do good things. That is well worth the extra six to twelve months spent in the next best thing to Dante’s Inferno.

So how am I doing? Right now, though VH occasionally twits me 😉 about stacking up enough cash to be the envy of fellow unemployeds, I’m nervous about the future. I’d be a fool not to be—in this economy? With these pseudo-if-not-real hiring freezes? Since last week, I’ve seen three more friends lose their jobs and another floundering to keep his business open. Times remain very tough, economic indicators notwithstanding.

Still, I’m not allowing fear to paralyze me. I’m working hard to find my next new path and get well, and I’m also trying to stay in the moment and enjoy a little of what I’ve earned. We’ll see how I fare in the next six months as benefits start to run out. I certainly hope to have landed a job by that time.