The Weight of Money

There isn’t anything to talk about when there isn’t any money in the account. For the first time in 2 years, our personal account will have a balance less than $1,000 – maybe even less than $400 if I drag my feet on an account transfer. This freaks me out, to me, it’s the equivalent of being flat out broke. Right now, I’m worried about filling the gas tank and going to the grocery store. Sigh.

One-plus year of not making quite enough has finally caught up with us. We’ve been able to skate by, somehow, each month but that has run out. I need to figure out what I’m going to do about it, but I’m at a loss because I’m out of options. I was hoping for a raise to come in last month and it never did. Last week, we finally got paperwork about a raise (I don’t think it’s going to be back dated, or is that call pro-rated, for a July 1 start as it has in previous years) but it wasn’t anything to be comfortable with. So, what was going to be a slight boost, didn’t come when we really needed it, and as it is, we’re probably only close to breaking even now – which doesn’t make up for the fact that, based on the way our budgeting is supposed to work, our account is facing a $4,000 deficit.

Sigh – I’d love to post more, but lately, it’s been too frustrating to face the numbers – even for me, someone who usually finds comfort in the reality that the only way to solve the problem is to truly understand it. I understand the problem, but don’t see any solutions on the horizon, other than starting busting my butt 24/7 (something thats not remotely possible with a newborn in the house). I need to do something though… maybe posting about it will help get me motivated.

Do you remember my life insurance calculations? Probably not, because I posted these back in September 2007 when we started the application process to get life insurance. Can you believe that it’s taken until April 2008 to finally complete that process? It’s insane that it’s taken this long and I’m surprised I had that much patience to wait it out.

In September, we placed an inquiry with SelectQuote (SQ) to help us select a life insurance company. After looking at the options and quotes provided, we went with Banner Life Insurance company. In October, a mobile medic came to our home to collect basic physical data and blood samples. It took another month, maybe longer, to get our blood lab results back – we were healthy. At this time Banner rejected my coverage due to additional information I provided on the final application. I was disappointed, but not surprised, by their decision and realize that I’ll probably never be able to get life insurance – thats just life. Then the marathon wait to complete the partner’s application began.

The partner is a cross your t’s and dot your i’s type of person – he fills everything out in detail. And, for life insurance purposes, this is probably a good thing. On his application, he noted visiting a doctor within the past two years. These companies like to know you are indeed healthy, so they follow up with your doctors and will review your medical records (you have to sign a release for this). We should have known this might cause a problem – not for medical reasons, but because of issues with the doctor’s office. He went in for a test based on a concern he had and then never heard back about the results. For a couple weeks, he would call and always be told the results were not in. This went on for a month or so, life happened, and then when he called again several months later, they said his records were moved to off-site storage. So, we never found out the results and didn’t worry about it.

When the life insurance company tried contacting this doctor’s office they ran into similar problems. From November through April, they called and wrote repeatedly to get a copy of his records and was always put off and told the records were in storage. Finally, last month, the partner stopped by their office in person, after the SelectQutote agent had called up for what seemed like the millionth time to follow up, and the office claimed to have never received any requests or anything. Finally, Banner sent us a notice saying that the application was canceled for lack of information. Our SQ agent was still working to help us get this completed, even after the application was closed. Within less than a month of the partner’s visit, we got notice from Banner that the application had been approved – guess they re-opened it – and payment is due. Upon review of the paperwork from Banner, I think our SQ agent finally convinced them to drop that requirement and the doctors office still hadn’t responded.

So, now we finally have life insurance for the partner, at a rate less than what were originally quoted, and I can rest better knowing that if something happens to him, I won’t be drowned financially. I am not upset over the fact that I don’t, and probably never will, have coverage and will simply need to make financial plans knowing that life insurance is not an option for me.

Also, I’m not sure what the going rate for health insurance is for many people, but in light of putting real numbers out there, we’re paying a little less than $500/year for a 20-year $750,000 term life insurance for a healthy, never-smoked, forty-year-old male. Based on the quotes provided by SelectQuote, this seemed like a good price, but I’ve never talked life insurance with friends since most are not supporting anyone else. I also like the fact that the rate will not increase over the next 20 years, a nice comfort when starting life insurance at 40.

Reading other personal finance sites is starting to paint a rather ominous airs about our near future. These ramblings have been going on for a while now and seem to be hitting near crescendo effect. I’ll admit that the more I hear, my nerves prickle just a little. I try not to get too worked up over popular media reports, especially because of their sensationalist nature, but money is a very touchy subject and the thought of tough, lean times is a little disconcerting.

All the doom and gloom feelings aren’t just from popular reports regurgitated by bloggers, I’m facing the commentary from the partner which leads to even more ominous second-hand observations. The partner works at a small start-up firm that is quickly approaching that magical sink or swim timeout-point for most new companies, and the waters seem to be pretty deep right now. Their recent financial struggles and budget trimmings has made me nervous. At first, I was confident that the partner’s position wasn’t in jeopardy because his position is essential to the company in terms of getting in more money — they can’t pursue contracts if they don’t have the engineers to develop items. I felt that all the other staff — overhead, prototyping, and production were in a much more vulnerable position because, while they’re needed to complete contracts, they don’t help bring them in.

Things have been quiet on his work front, but he still brings home occasional comments that send my panic sensors flying. The biggest concern is that the new contracts are running dry. In fact, there are no new contracts waiting for current contracts to build before progress can continue — this is a scary situation as many current contracts are reaching the end of their terms. The partner’s primary project for the past few years ends this month, after that, there is nothing waiting on his desk to take his attention. Also, he has made comment that he’s been getting help from other engineers eager for something to work on… a year ago that wouldn’t have happened as everyone was so buried in their tasks.

The other major stressor is that the partner’s supervisor will be leaving the company in a few months. This is a serious job-security blow because this person has made the past few years of new company growth bearable and is also, from my limited view point, the partner’s biggest advocate in the workplace. While I like the partner’s company, I find myself liking it a lot less when I picture it without this person present because he seems to help balance the overall energy of the company. Losing him will have a huge impact on my comfort level with the partner’s continued employment, and probably with his as well.

So, things are felling a little sticky at the moment and I’m getting a little nervous. Our continuing financial struggles aren’t helping, though I’m constantly just repeating how it’s just a temporary house-poor adjustment that will be a faint memory in a year or so (please, don’t burst my bubble on that one little, though not guaranteed, comfort I have).

Update: After writing this article and before posting it, the partner and I had a long talk about these concerns and for once I feel like we’re actually on the same page in terms of his employment prospects. It looks like he’s feeling motivated to make some steps, though tentative, at checking out greener pastures – what a relief from my perspective.

Last year started out nice and slow and ramped up to an almost unimaginable pace. There are so many things that I was going to work towards that got pushed aside by minor emergencies and new obligations striving for my attention. Before I get started planning for 2008, I wanted to see just how we finished out the year. After some major procrastination, I finally closed out our November and December budgets and the picture ain’t pretty – more on that in a bit. First, lets look at our 2007 goals:

• Goal: Increase Savings for Home Purchase to $20,000 by July 2007. Meeting this goal was my biggest financial-ego boost for the year. We dropped about $8,000 – $9,000 on all the costs with buying and closing on the house and we still had another $10,000 sitting in savings after the fact. This was a major stretch for us and I’m proud that we made it happen.
• Goal: Reduce Credit Card Debt to $10,000 by December 2007. We’re about $5,000 short of this goal for the year. $2,000 of this total is my fault since I replaced my laptop when it died on credit instead of pulling from savings. Also, we’ve taken a 6-9 month break on beating back debt as we do what we can to keep our heads above water.
• Goal: Buy a house in July 2007 Success! We are the proud home owners of an old (137 years) farm house with just an acre of property. It was less house and land than we wanted at a pricer higher than we really wanted to pay. Despite those things, it is working out and we managed to stay within a reasonable commuting distance for the partner. The majority of the houses we were considering were much further out and now, having lived with the commute, we are very appreciative of the house we have.
• Goal: Increase retirement investments to 15% of income by December 2007. I’m a little embarrassed to say that I’m not sure where we are at with this goal. I think that the partner is still contributing only 6% of his income to retirement. I expanded my home business to be my only income source but did not put anything into an individual retirement account. This is something we need to get a handle on for 2008.
• Goal: Increase Passive Income to $200/month. We’ve managed to accumulate about $50-$75/month in passive income. I don’t see this increasing anytime soon.

Overall, I think we did a pretty good job in 2007. The last 6 months have been a serious stretch as we started to resonate with those crying “house poor” from time to time. But, even though our budget has been hit pretty hard with the new housing costs, we’re still well fed and clothed and not standing on a corner with a tin cup in hand.

Here are some numbers on our total spending for 2007:

• Credit Card Debt: $4,951 or 9.3% of spending
• Student Loan Debt: $3,805 or 5.7% of spending
• Utilities: $3,829 or 7.1% of spending
• Housing: $20,803 or 38.8% of spending
• Groceries: $4,098 or 7.7% of spending
• Eating Out: $2,933 or 5.5% of spending
• Transportation*: $6,401 or 11.9% of spending

*Transportation includes gasoline (about 8% of total spending), insurance, repairs, and fees.

The above numbers only reflect spending from our personal account. Items that are automatically deducted from income, such as retirement and health insurance, are not included.

Reviewing last years goals’ progress and our annual spending (especially the percentages) prepares accurate and reasonable numbers for spending and savings for 2008. As I emerge from several months of serious financial neglect, I have a lot of work ahead of me to get us back on track to be in a position to pursue goals of any type. As I mentioned, November and December were ugly months, fiscally speaking. I chose to continue spending without considering the impact it would have on our budget, and didn’t follow through with the partner to mange his spending as well. As it turns out, we closed out the year $3,000 short – which is almost an entire month’s worth of bills and spending. I’m frantically working to correct this and get our numbers in order for 2008.

Oh boy, tax season is going to be a lot of fun this year. Not only are my small business taxes going to be much more complicated than last year (last year I made money and didn’t spend any — makes life pretty simple) , but we also have a house now and I get to learn all the fun stuff that comes with that. Oh, and the combination of home office and owning a house — those will be fun to figure out too (could have done it before, but didn’t want to bother).

I actually love tax season and love filing my taxes — mostly because I have a strong passion for filling out forms and taxes are all about forms. Major plus for forms that have lots of if, then type statements and lots of hidden steps for filling out information.

This also points out that I need to start better record keeping NOW!! so that this process is much easier next year. And, I need to track mileage better because so many trips that I make are deductible, either as a business expenses or for medical or volunteer reasons.

Wow, I’m starting to feel like a real grown up now, not only do I need the long form for taxes, but now I’m really getting into all those extra schedules and forms to go with it. Woot!

I’ve finally made progress on getting life insurance. Recently, I woke up in the middle of the night in a panic because we didn’t have any yet. So, I got some quotes to work with and have selected a company to move forward with. Next up is the application process. To determine our coverage amount, I took several things into consideration. The standard calculations of 7-10 times your current salary seemed too cookie-cutter and unrealistic. Here are the initial numbers I calculated:

Current Debt

• House: $250,000

• Credit Cards: $16,000
• Student Loans: $30,000
• Total: $296,000

Future College Tuition

• Children: 1, 4

• Cost of 4 Years of College: $40,000
• Total: $40,000, $160,000

Annual Income Replacement

• Partner: $40,000

• Myself: $20,000
• Duration: 20 years
• Total: Partner $800,000, Myself $400,000

I ended up with a calculation of more than a million dollars of coverage for the partner. That seemed to be quite high and led me to to reconsider some options. For one, college tuition is highly variable and I already have no intention of paying the full college tuition for my children. Also, I realized that the annual income I was hoping for was to cover expenses that included savings for retirement and college tuition. Seeing that the number seemed too high, I also realized that while I would love to be able to stay home with our children (there is only one now, hopefully two in the next year), I’d probably be better off getting another job and not fully relying on life insurance benefits.

To lower the coverage amount, I reconsidered our actual expenses (both current and future projections). I calculated our annual income needs to see how off the numbers really are (but again, these numbers are just estimated projections and they too could be very off).

Annual Income Needs for the loss of primary income (twenty years):

• Property Taxes: $4,000 ($80,000)
• Food: $8,000 ($160,000)
• Clothing: $3,600 ($72,000)
• Transportation: $6,000 ($120,000)
• Utilities: $6,000 ($120,000)
• Household: $3,600 ($72,000)
• Entertainment: $2,400 ($48,000)
• Other: $12,000 ($240,000)
• Total: $39,600 ($792,000)

This amount is pretty close to the $40,000/annual income I had originally estimated (and I included elevated numbers since everything seems to get more expensive over time). Next I factored in the fact that a loss of primary income prompts a return to work on my part. Lets assume the 4 children scenario and that the loss of primary income comes right after the fourth child is born. I would need the full $40,000 a year until the youngest child enters primary school, about 6 years. At that time, I could assume that I would easily be able to manage a part-time job and would be able to decrease the needed annual income to $27,000. After the youngest child enters high school, about 9 years later, I could move up to a full-time position and reduce the our annual income needs to $10,000. This works out to the following life insurance needs:

• $40,000/year for 6 years: $240,000
• $27,000/year for 9 years: $243,000
• $10,000/year for 4 years: $40,000
• Total need over 20 years: $523,000

Partially considering this scenario and my reluctance to opt for a million dollar policy, I chose $750,000 in coverage for the partner. Going with the scenario above, this would leave $227,000 to pay towards current debt, a sufficient amount assuming our debt decreases by the time a fourth child is born. There is not additions for college expenses because I factored deposits into college savings account in the “other” annual category listed above.

For my coverage, I selected the $400,000 to provide $20,000 per year for twenty years – this is to cover food and child care costs that my partner would incur if I were no longer in our household. Also, the idea is that the partner should be able to cut back his workload some to manage parenting alone. This number may actually be too high, but if there is an instance where both of us pass away, it will cover all of our outstanding bills and provide for the care of our children.

One final note, life insurance should be reassessed with life circumstances changes. Getting more coverage than we currently means we’re paying more than we need to for something we may never use. However, time passes quickly around here and I want to be sure that I don’t have to reconsider life insurance for the next few years. Now, come child 2, 4, or 6 – I will probably need to see if these numbers still make sense for our family – in the meantime, I’ll be comfortable thinking that we’ve got enough coverage for now.

The partner and I are struggling with my near-constant push to leave my job and start a family. The major contention factor: we can’t afford either. I’ve had it with my job and want to leave, but we’ve not closed on the house so I need to wait until then. But what happens after we close on the house?

The partner thinks I need to wait much longer than just another week. At one point in today’s email exchanges, he commented on how we need to bring in as much as we can in the next few weeks and perhaps I should even reduce my 401K contributions. My response: perhaps I should double them instead.

The reality of the situation, to me, is not that we need to make more, it is that we need to function on less. However, as much as I hate it, he is right. I can’t replace my consistent income and we can’t do without it at the moment. But how long will this moment be? Another two weeks? Another four? The entire summer?

I want to run home, this instant, and run the numbers – but I know what they’ll say – tough it out for another day.

Got a call from another new sewing customer last night. Seems I’ll be helping her with her July wedding; we’re meeting tomorrow to talk shop. I was so excited that I called my ma and told her how awesome she is for suggesting that I take in sewing and for being such an amazing role model in handling customers and making things happen.

I’ve found that my customer service skills are modeled directly from her. When a new customer came over last Friday, I could hear her voice echoing mine as I greeted them and answered their questions. Everything I said was identical to what I’ve heard my mom say and I included all the social banter and good-hearted talk that my momma always brought to every transaction. Through out that visit, I couldn’t help smiling at the fact that all those years following her around to customer and client visits had a such an impact.

I’ve given little thought to all the transactions I witnessed over the years, but now it is an invaluable repository of information. I’m so proud of everything she did as a single mom to make ends meet and thankful that she was able to teach me so many things leading by example.

To top off the happy-gushy post, this weekend she gave me an amazing compliment: she called seeking some professional advice. She said that I always have valuable insight and suggestions and wanted to know what I thought about some of her recent plans and ideas. I’m honored that she feels my experience and insight is so valuable and glad to know that I can give back to her a fraction of what she has given me.

My stamina for work is steadily decreasing. The emotional environment is more hostile and negative each week. I’m sure my frustration and negativity is feeding this unhealthy cycle. Every day I’m at the point of walking out and never coming back, every single day! Of course, we don’t close on the house for another month, so I can’t walk just yet. Even though it is just a month, it feel like an eternity of waiting. Of course, I don’t have another job lined up, so what to do, what to do.

I’m picking up some extra sewing, but not sure that I can supplement my income with that alone. I’d have to sew up 10 sets of curtains a week, and I don’t imagine my one client has that much work for me.

I just got a job doing a bunch of ribbon shirts (indian shirts) because my mom was too swamped to do them. This will be about $300, but again, not something that will continue. I’d really need to build up business a bit more to make that happen and I’m not sure I’m at that point yet (in terms of time or networking).

So, I’ve got to pull through this, pull really hard through this and develop a plan.

The Weight of Money is approaching it’s one year anniversary. In preparation, I’m gathering our net worth data and look to compare where we stood a year ago to today. The timing is great because I’m currently sending copies of all our accounts and statements to the mortgage broker to verify income and cash on hand, so no additional scrounging for numbers will be needed.

I’m please to say that we have a total of $29,800 in cash assets, $6,900 of which in in our retirement accounts, leaving $22,900 in cash/savings. This really cheers me up since I’ve been feeling stressed in the money department. We hit a money snag in our relationship recently in discussing cash available for home purchase and this help relieves some of the tension, on my part at least. Hopefully I can get in more detail later this week (the post is half written, at least).

Between now and the end of May, I’m currently juggling multiple projects varying from musical rehearsal, finishing 3-D sculptures for an upcoming art show, nonprofit planning, professional sewing, house hunting, and an ever increasing workload. Needless to say, it’s been a challenge keeping up with all of these items and our finances.

I’ve yet to compile April’s budget and haven’t entered spending for March. It is moments like these that I love living on last month’s income. I don’t have to stress too much because I know that there is money in the bank, even if I haven’t had a chance to budget for it yet. If we were counting on each paycheck, it’d be a much more stressful position.