Transition

Wow, we've really been quiet around here! Time to dust off this blog with a fresh post.

For those of you who don't read my blog, I'm nearing the end of my sentence tenure in grad school with my defense scheduled for December. It was difficult to decide on a date for plenty of science/work schedule reasons, but money played into it too. I wanted to keep as many employment options available as I could. So, I'm defending too late to graduate in the fall term, but with the defense over I'll be able to start a post-doc at the start of the year if I get one. And if not, I might be able to get a teaching assistantship since I won't have graduated, and there's actually still one tiny course requirement that I have to fulfill (but I could do it remotely if need be).

Thanks to some of the good advice I've gotten here and elsewhere, I've been able to save up some money to tide me over in case I end up with a gap in employment. If I do get a job lined up before I defend, however, I'm totally booking a vacation!

Lest you think I've forgotten that students in the sciences might have it comparatively easy, I'm sure it's completely different in fields where you have to pay tuition and don't get a stipend, or fields where you have to do an internship. Anybody care to share another view?

balancing budgets and budgeting styles

I've been keeping careful track of what I spend money on since about 2002. I've got an Excel spreadsheet format all worked out to my liking, and I try to enter receipts weekly (sometimes more often, oftentimes less). I think I miss some small cash expenses, but I generally have a very good idea of how I (now we) spend money.

For most of my relationship with Jon, I have been the money manager. We've been a 'financial unit' since about 2005. We're both responsible with money, but over the years we've learned that we have different strategies for managing it. Jon has little interest in my money management system, but developed a different system for our several months of travel abroad. We took all of our money allocated for our travel, divided it by the number of days we expected to travel, and came up with an average daily budget. Every day we entered our expenses and income and if we overspent, we watched our daily allowance go down. This system was great for knowing exactly how much money we had to work with.

This week we he and I have had some discussions about money. Our money is pretty complicated, and I'm the one keeping track of it closely. Jon is trying to save for a new computer and we're trying to save for our wedding in April. Both of us have to set aside money for taxes because it isn't taken out of our paychecks. We're making ends meet, but we're not able to save much once the bills are paid. We had to find a way for both of us to pay attention to our spending habits.

My approach would be to make an allowance for each major expense category (food in particular) and stick to it. Jon doesn't like this approach as much, so we've just re-implemented Jon's daily average system to be sure that we meet our spending and saving goals from paycheck to paycheck. Setting aside for rent and other known expenses, we've got $15.41 per day until December 2!

What's your system?

Budgeting Basics

Setting up a new budget can be hard, painful even, especially when you consider the rapidly increasing price for energy. However, too often we lose sight of the essentials when planning for our extras. What are the essentials anyway? How do we account for them? I consider four categories necessary for financial independence: home, food, transportation, and debt.

Home: this includes your base rent or mortgage payment and utilities. You cannot live in a building typically without having to pay for electric, gas, water, sewage, and trash. One money saving option for the electric and gas companies is to ask about budget plans. On budget plans, you pay a flat rate each month, independent of your usage. Your meter is still tracked every month; you may get a bill or refund at the end of the year depending on how you did relative to your yearly allowance from the company. Knowing the amount every month helps to stabilize your cash flow even in the less than temperate times of year.

Food: we've discussed this before on this blog, but it bears repeating. You can save money on food. Consider where you shop, when you shop, and what brands you're buying. A random realization from my own experience suggests that proteins in the morning make for smaller meals at night.

Transportation: I know, this is a sore spot in anyone's budget right now. One way I make things more bearable for myself is to budget according to the number of tanks of gas I need. When I am driving at my maximum amount, I use 4 tanks a month. Considering how I can limit my gas use allows me to adjust this figure without feeling too constrained. Also, do not forget to include your car insurance if that is how you get around.

Debt: Remember, I'm speaking from a position of financial independence. If your situation requires you to get a loan, get a loan. When managing payments, consider the loans with the greatest amount of interest generated in your payment cycle and the interest rate. It may behoove you to submit additional payments to free yourself from the loan faster; the interest you are paying is money that goes straight to the bank. If your highest amount of interest generated does not come from your loan with the highest rate, then consider splitting your additional payment between those two loans. Most of the time the amount that the principal creeps down is minimal at the start of a loan, but if you can make a couple of larger payments towards the beginning, you could wind up saving thousands of dollars in the long term.

How I Saved $3000 as a Recent College Grad in NYC

I moved to New York during the singularly inauspicious year of 2002. The city’s economy was in the dumps, and I was lucky to have a job at all. It was an academic job, and so I made a whopping $28,000 per year.

In a city where the average rent is (today) around $2,553 per month and a renter is usually required to earn 40 times the rent, my salary didn’t go very far.

Here’s how I managed to save $3,000 while getting by.

I used the envelope system ruthlessly.
I budgeted every single penny at the beginning of the month. Because I got paid only once a month, this made it pretty easy to see where all the holes in my budget were.
I paid off my credit card every month in full.
I ate a lot of pasta, bread, tofu, and vegetables – all cheap.
Only once did I call home and ask mom for money.

Last weekend I found one of my old envelopes. I don’t think I want to go back to that system again; it was pretty unforgiving, but it’s a good reminder of how comparatively luxurious my life is now. Here’s a breakdown of my average budget:

$1800 monthly after-tax income
$600 rent (for a 600 square foot apartment split between 4 people)
$300 student loans ($250 minimum payment)
$200 savings
$50 utilities, laundry, etc.
$100 credit card
$150 food
$400 spending money

I had $100 per week to do anything I wanted with. I bought clothes, I went out with friends, and when the money was gone, I stayed home. Sometimes I spent $300 in a week and spent the rest of the month bored. Those months were long, but they taught me to think of my credit card as a lien against future earnings. Whatever I racked up on my credit card I had to pay in full next month. Things happened, of course: sometimes I had to raid the savings account to pay my credit card bill, but I treated my savings account as a bill to be paid over the next couple of months. Any windfalls and interest went into the savings account too.

The only time I called home for money was when I found out that I would have $300 to get me through an entire month before my full paychecks kicked in. Sometimes there's just an impossible situation to budget around.

And the discipline pays off. It keeps a lot of options open because I don’t have to keep chasing the next raise to keep up with bills. So if I have any advice to recent grads, it is this: don't move to an expensive city on a whim, and make a budget you can live with before you get your first paycheck.

Does anyone else remember their post-graduate budget? Or was everyone smarter than me and started out in cheaper cities?

Budgeting for tuition…

…I find, is a perennial pain. I have most other aspects of the family finances down pat, but I am frustrated with our stagnant savings. Apart from retirement accounts, our savings haven't budged upwards in three years, partly because we approached the savings account as fungible: that is, long-term savings, vacation money, and tuition were all in one big pot. The problem was that the pot never got any bigger, because while we were saving, expenses cropped up at an equal rate.

A while ago, I stumbled across Richard Jenkins’s article “The 60% Solution” (see ecogeofemme’s post below) and started taking a more targeted approach to saving. Because my husband and I live in New York City, our “solution” is closer to 70%, with the annual expenses and fun categories mostly eliminated. We don’t own a home, so our annual and irregular expenses are relatively small: gifts, renter’s insurance, and my ZipCar membership fee.

Then there are the two months out of the year when tuition is due, and all hell breaks loose.

The seemingly logical thing to do would be to add up all of the anticipated tuition due for the year, divide by 12 and sock that amount away each month. The problem with this approach is that it would have worked beautifully if I had started doing so before I began my master’s program. I didn’t, so I am perpetually behind the 8-ball. Currently there is $500 in the annual expenses savings account, and a tuition bill of $1,740 due at the end of June.

Because my husband and I already have over $70k in student loan debt, I don’t consider more loans an option. I need the second degree to qualify for the job I already have, but I can’t anticipate a salary bump once I finish, so it doesn’t seem wise to take on additional debt.

As has happened each of the previous two years, I’ll probably have to take part of it out of long-term savings, which is really frustrating because this is a major reason that we have made no progress saving. At least this year I can use my $600 tax rebate check to cover some of it.

Then I can start saving for the next tuition bill, which is inevitably due in January – at exactly the same time as the Christmas bills come due.

Even if I can’t budget enough to cover airfare home for the holidays, presents, and tuition, I can at least try to cover some of the anticipated expenses. $1740 divided by 6 months is an extra $290 that I will have to find in the budget, but at least that January bill will be the final tuition bill ever. I graduate in a year, if all goes well, and I won’t have taken on any additional debt to do it.

That’s going to feel like a huge accomplishment in and of itself.

How do you handle tuition bills? Divide and conquer? Loans?