Cutting Costs for the Already Pretty Frugal

I both have and have not been good at managing money in the past. I’m about 12 years past the point at which I wish I’d started saving something, anything, for retirement. There’s also one really, really big expense I wish I’d cut: I wish I’d accepted the necessity of a cheap apartment a few years longer. I lived in my very very expensive grad school city for that entire twelve years out of college, and for the first eight of them I lived within my means. I cycled up and down through credit card debt when I was freelancing, but never carried a balance longer than a few months at a time, as I prioritized paying it off when I had a work project going. (This left me with amazing credit, by the way.) I lived with roommates and/or in dirt-cheap parts of the city (sometimes both) and took on second jobs while in grad school.

But during the last four years, I had had enough of living in a part of the city that was incredibly inconvenient for my social life. It took me nearly 2 hours to travel from the neighborhood where I lived to the neighborhood where most of my friends lived, and as a result I rarely saw them. So I moved, and then I moved again to a different place in the same neighborhood. My social life *definitely* improved, but all my expenses went up — rent, food, transportation, everything. This is where the majority of my $19K student loan went.

So ANYWAY, I regret not working harder at finding a much more affordable living situation in New Neighborhood (I don’t really regret moving in the first place — maybe a little, but not much.)

But really — all things considered — I have lived a damn cheap life, which is why I’m not in much worse financial shape after all that grad school time. Here are things I don’t do:

(1) have cable
(2) have a smartphone
(3) drink (mostly; I’ll have a glass of wine every now and then)
(4) “shop” — not that I never spend money on books, clothes, or music, but going out looking to buy stuff isn’t a hobby. Good thing too since I move so much.
(5) wear makeup or engage in a lot of beauty routine stuff — I get my hair cut, which is probably my biggest personal care expense. (For several years I did it myself, too.)
(6) go to a lot of concerts or other non-free entertainment
(7) drive a car that is even new-ish

There are other things I spend money on that do feel like necessities:

(1) some clothing
(2) therapy, at the moment
(3) cell phone
(4) travel. I don’t live in the same place as any of my friends/family. Plane tickets and gas add up.

This leaves things I probably could stand to cut back on:

(1) food — sigh. Yeah. I spend a lot of money on food. I do bring lunch a lot, but not every single day. When I’m at work, I generally buy a cup of coffee in the afternoon, which runs around $2. I buy nice produce. I buy in cash at the farmer’s market a lot so I honestly don’t have a great sense of what I spend even with using mint, but I wouldn’t be surprised if food added up to $300 a month or more. For one person. Ouch.
(2) …internet? I guess?

And it also leaves things I *could* cut back on but just *really don’t want to*. Things like the occasional movie/CD/book, or nice shampoo, or buying a new kitchen item.

So, with the big pay cut arriving in July (to go along with my loans being paid off, so things will more or less even out), I agreed to move in with a friend in New City. New City is already extremely cheap even without sharing space, and monthly rent/utilities expenses should drop to $350-400 depending on time of year — which is to say, literally in half from what they are now. All of that cash is going STRAIGHT into my IRA.

I’m not sure how long this will last — probably a minimum of 6 months, but maybe not more than that. We’re just going to see how we do with each other, and maybe I’ll end up in more expensive housing afterwards. But that’ll be an extra $2000 or so to add to the world’s tiniest retirement fund, and I guess every little bit helps.

(Also, sigh, I need to get serious about controlling the food budget.)

The Rent Is Too Damn High

One thing that does concern me about the PF blogosphere is that in some quarters there’s a lack of…sympathy? understanding? of the crunch that the realities of costs/income in the United States today create. For example, the infographic here makes it seem as if Americans’ money troubles can mostly be chalked up to buying expensive purses. While “living beyond our means” is definitely a problem for *some* — including me; the reason why I had the $19k of debt a year ago is primarily that I didn’t stick strictly to a budget and seek out the cheapest housing available as a grad student in a very, very expensive city; I could have found smaller, cheaper rooms in less desirable neighborhoods and probably avoided some or all of that debt — moral failure doesn’t really account for the bad ratio of spending to income that we see there.

For most Americans, the two biggest costs are health care and housing, followed in short order by commuting. Then there’s child care, and of course food. For decades, real wages have flatlined or declined in most sectors of the economy, while health care and housing (especially) have skyrocketed. In any one given case, the problem might be spending too much on vacations, drinking, or flat-screen TVs, but in the aggregate, the problem is much more structural; people working precarious jobs in a part-time, freelance, relentlessly anti-labor and cost-cutting economy are having a lot of trouble affording the basics.

This is “the decline of the middle class” in a nutshell. I’m 35 and single. I’m not talented in any of the areas where people still make a lot of money — computer programming, finance. I might get a job pretty much anywhere in the country, and that job will probably fall within a narrow salary range; at the low end, around $50K, at the high end, around $65K. In my current town, $65K for a single person buys a pretty nice life; housing’s not dirt cheap or anything, but it’s very affordable. Even on $50K it would be a pretty nice life! However, let’s say the job is in Philadelphia, Chicago, or Los Angeles — or, God forbid, New York or San Francisco or Washington DC (all places I would love to live, by the way.) Salary likely to be on the high end of that range, but in terms of housing? I can’t see how I’d avoid having to either have roommates, or find some kind of wacky S.R.O. arrangement with a hotplate (which, by the way, don’t really exist anymore), or live in a place that required a massive commute. Rent for a 1br in DC or NYC, in any kind of central location not requiring hours on public transportation, is running anywhere from $2500 to $5000 *a month*. So…not happening.

The point is that even people willing to “go where the jobs are” and to work very very hard and to live very very frugally (I don’t drink, rarely travel, use the public library, do virtually all my own cooking, hardly ever buy clothes) can *still* find themselves in a situation where the basic cost of housing is almost out of reach. And this is discounting medical emergencies, which are still the #1 cause of bankruptcy in the United States.

So, to sum up: I don’t discount the role of personal responsibility and the need to live frugally. People in debt *do* need to figure out some kind of personal solution. But I feel pretty strongly that we ought to acknowledge that rent, medical care, child care, and transportation can eat up a hell of a lot of a normal salary — and when you work at Wal-mart or McDonald’s? Well, forget about it.

[ETA: This very interesting post (and interesting comments) from Impersonal Finance gets at some of this.]

Interest

I learned about interest in sixth grade or so, like everyone else, and then more or less forgot about it. But I’m kind of obsessed with my student loan lender’s website right now — I’m waiting around for my April paycheck (end of the month) so I can pay off loan #1 entirely, as it’s down to an amount when I can do that. So I kind of like going over there and looking at the balance and thinking “soon! soon!”

Today I looked at the “level” vs. “graduated” numbers though, because they were there and I was bored. This refers to the two possible payment plans they offer. On the level plan, I would (if I weren’t going to pay the loan off entirely this month) pay $95 a month for the next 28 months (just over two years) and end up paying just under $200 more in interest. That actually doesn’t sound so bad; if the damn thing weren’t so annoying, I’d consider doing that, hardly noticing each payment, and bulking up my savings accounts instead. (It is annoying though, so I’m not going to.)

On the “graduated” plan, meant for people with lower incomes, I’d make payments of $25 a month now, rising to $34 over the course of 115 months (or not quite 10 years.) This would be even less noticeable from my monthly budget. But I’d end up paying $940 in interest, or over 1/3 of the current total value of the loan. (Let’s not even talk about what these numbers would look like if I hadn’t been aggressively paying the thing down for six months.)

The difference between these two might as well come with a big flashing sign saying “the lending industry punishes poor people.” The big difference — the ability to make either triple or quadruple the minimum payment — results in a payment time of around 75% less, and also an interest payment only 21% of the other. (I did actual math for that last number.)

And whose interest is that in?

Early ups and downs

One of the things that I’ve really liked about reading around the personal finance blogosphere is how committed people are to reaching their goals — and how open they are about how hard it is to keep it moving on a day to day basis. I’ve only been at this blog for a week, and only had my big “must have a retirement fund now” moment a couple weeks before that, and yet already I can see this pattern.

Objectively I’m not in a terrible spot right now; the guy in his late 50s whose retirement savings are wiped out after a year of unemployment (just featured in the NY Times) is way worse off, and so are, like, billions of poor people the world over. I am determined to wipe out my debt this summer and not get back into it unless I need a car loan (in case mine dies, not because I plan to upgrade) or a mortgage. I have a guaranteed income for the next 15 months. I have wonderful friends and family members that would back me up in a second if I needed it.

But despite these good things, I feel…wobbly. Maybe because none of my financials are going to budge for nearly a month now, until my next paycheck? That might have something to do with it. It’s exciting to see my net worth jump so much at a time, and to pay off a big chunk of loan, and to open a retirement account. Waiting around, doing my job, for a month, until the next one comes in…that’s a lot of days of “one foot in front of the other” where nothing is happening!

So, I guess I have to work on both moderating the spike in my mood when I something good with money, and also on moderating the low I feel on a day like today, when I’m convinced any effort I make is for nothing.

Just Do It

I think maybe the most important thing I’ve gotten out of the last few weeks of reading is the message on retirement savings: just start. Don’t pay attention to the series of objections I always had:

1) I don’t have any spare cash
2) My life is so unstable right now; if I do have spare cash, it should be in emergency savings where I can get to it fast
3) I don’t have enough spare cash; don’t you need thou$ands?
4) I don’t know how [ok, this was a big one]
5) There’s nobody pushing me to do it and no obvious beneficiary if I die before I can use the money [this is where singleness comes into play]
6) Shouldn’t all available money go towards the student loan instead? [This is why I didn’t open a 401(k) with my current job — although there would have been no match, which mitigates that choice a little. Still should’ve asked for $200 a month to be taken out or something.]

Instead: just start. Even if it’s small. Even if it’s $25 a month. Even if you have to take the initial deposit ($1000 at Vanguard) out of emergency savings. Whatever. Just start.

It seems sort of like having a kid (nb, I do not have a kid, so YMMV) in that you never quite feel “ready” to take the plunge. Instead you have to just…start.

(An article I found useful on this is at Investopedia, by the way.)

Fear and the Future

So, in an earlier post I mentioned the relatively well-paid but temporary nature of my job. This happens a lot to early-career academics; I know some people who’ve gotten a permanent job right out of school, but just as many, if not more, who’ve had several temporary stints first.

I’m fortunate in that my first temporary job has been excellent; great location near family, compensation generous enough to allow me to live pretty well while also aggressively attacking my debt. My second temporary job…well, it’ll be ok. It’ll start this summer, and involves another move (groan) which fortunately they’re paying for. It’ll be in a city where the cost of living is even lower than here, but which will be more expensive to leave; if I want to go anywhere it pretty much means flying, not driving. And worst of all, I’m taking a pretty huge pay cut for it.

The thing is, my current job is so well-paid by the standards of my field that almost anything was going to involve a pretty huge pay cut. That’s just the reality; I was enormously lucky this year, and can’t expect that luck to continue indefinitely. And along with the dip in compensation is coming a dip in teaching responsibilities, so I can focus much more on writing than I’ve been able to do this year.

But I still have concerns.

*It’ll be the second post-graduate year in a row where I’ve had access to a 401(k) or 403(b), but no employer match due to the temporary nature of the job, so there’s not much incentive to contribute. (As far as I can tell, without an employer match it’s better to do IRAs rather than a 40…plan.) I’m kind of annoyed about this, and also worried; what if I never get to the point where an employer is finally putting something in? I’m getting old, from the point of view of compound interest.

*Ugh did I mention the really big pay cut?! (Offset substantially by the projected retirement of my debt, but I’m still going to have to go to real budgeting and/or get a second, freelance job in order to keep up with my new retirement plan.)

*Since it’s another temporary job (albeit a full year guaranteed, with health insurance) it’s still very difficult to project a future path. I can budget for the next 12 months, but I have to simultaneously prepare for the very long term, while also prepping for the possibility that I’ll be moving AGAIN come next summer, or, worse, unemployed.

In short…I’m kind of afraid. What if I can’t make it work on the new salary? What if I can’t land something else next year? What if the “something else” I land has even worse pay, or security? (You’d be surprised at how many people have been laid off in higher ed in the last few years, as colleges have either closed due to financial problems, or cut the supposedly uncuttable faculty.) Lots of what ifs, and one very tiny retirement fund staring them in the face.

[Update on the very tiny retirement fund: it has grown by $20 in the last two days as the market went up again! I know, I know, day to day stuff is basically meaningless, and I don’t want to get as depressed if it loses $20 tomorrow, as I am happy today to see the $20 there…but still, it’s making me smile.]

Doing Stuff About Debt

So, it’s not like I’ve been totally blithe about debt and savings and other personal finance issues all these years. It’s just that…it didn’t seem to matter that much right now. There were more important things, like keeping the rent paid month to month, and I was still young, anyway, right? Plenty of time to do things like save.

But now that I’ve had this abrupt switch flip, not only am I mourning my lack of retirement savings, I’m also suddenly totally allergic to the debt. Realistically, I know that I’ve made big progress, and that it’s pretty cool that I could get out of debt entirely a year out of graduate school. Less realistically, it’s driving me CRAZY that I have to put basically all my remaining cash, after the bills are paid, towards the debt if I want to do that. I mourn the much nicer savings account I could’ve had after this year of full-time employment if I’d only lived just a little bit more within my means while in Very Expensive Grad School City….

That said, I’ve been pleased with some of the debt-reduction strategies I’ve used this year. First of all, I had enough sense to pay down my high-interest credit cards using my first couple paychecks. I’d built some up because of a series of emergency expenses incurred over the previous year (and of course I didn’t have an emergency fund, so.) Then, I paid off the used car I bought from friend who was moving out of the country. And then, around September, I was finally ready to start thinking about the loan…and since my grace period didn’t end until December, I was able to pay $4000 of it before it started accumulating interest. (The 6.8% for graduate loans is extremely annoying, by the way, and a big reason why I’m focused on paying them off before investing more in a retirement account.)

Second, I took a smaller apartment for $750 instead of a larger one for $950. This is kind of a medium win, since I looked at several apartments that were even cheaper, but none of them had laundry in the building and I kind of caved; after a decade of dragging everything to the laundromat, I was done. I feel, in retrospect, like maybe I should’ve been tougher on the apartment front. But at least I didn’t take the even more expensive and nicer option!

Third, while I haven’t been keeping really close track of expenses (I’m sort of afraid to think about how much I spend on food a month; it’s not that I go out so much, although I do probably spend too much on coffee and grabbing a sandwich, etc; but I like really nice ingredients and fresh produce and so on, and that definitely adds up) I have been using mint.com and checking it religiously, and I feel like overall that’s been really good about keeping me on track: focused on the debt but also on keeping expenses to a relatively low level instead of running off for vacations all over the place. Those scary red bars are scary!

I’ve had setbacks — a big tax bill that needed to be paid in February meant that I only put the minimum towards the loans in that month, and December holiday expenses also meant a lower loan payment — but I’ve basically been steadily chipping away, anywhere from $1000 to (this month) $2600 every month. I still hate how slowly the balance seems to drop, even when you throw over 2/3 of your take-home pay at it!

The Biological Savings Clock

One reason to start this blog is to keep me going as I finish hacking away at the student loan debt (how I acquired it and what I’ve been doing about it will be the subject of a future post.) But another one is to have a space to think through issues relating to making a more conscious turn towards the future: that is to say, emergency funds, savings funds, retirement funds. These things kind of freak me out.

Until a couple of weeks ago, I’d lived my whole adult life without getting into catastrophic debt, but also without any kind of financial margin or plan that looked beyond the next paycheck. From 22 to 34, I lived in the aforementioned giant expensive city; first I was a freelancer, then I was a grad student. Even the year that I made a grand total of $12,000, I did all right. I lived in cheap neighborhoods, with roommates, took public transportation, rarely ate out. But one thing I never did was establish any kind of permanent savings account. I didn’t work for anyone that had a 401(k); I never set up an IRA; I always had a regular savings account, but routinely drained it to pay for either normal living expenses (when I was between jobs) or travel.

You know how some women have the biological clock kick in around my age? They must have a baby right now or they’ll die? Yeah, I had one of those moments two weeks ago, except in my case it was about how I had to have an IRA, right this second.

Really, it felt like a switch flipped in my brain. One minute I kind of vaguely knew that at some point in the future, after I paid off the student loan and built up an emergency fund, I should start a retirement account. And the next minute I was frantically researching Roth vs. traditional, and how do you open the damn things anyway? Suddenly I just could not get enough, and I spent countless hours clicking around the various websites you get when you google “paying down student loans vs. retirement savings” and other search strings to that effect.

Reader, I drained my emergency savings funds again. But this time instead of going to Europe, or paying my rent after a down month, I put $2000 in a Vanguard target retirement fund. (Roth, in case you were wondering. It seems like a way better deal.)

It kind of makes me laugh, because hello, I’m 35, I have no job currently lined up for after July 2015, I don’t really know what I want to do with my career or what city I’m going to end up in…but hey, I guess I have a little something put by. A very little something. But maybe it’ll grow.

Introducing Me (And My Slowly Growing But Still Negative Net Worth)

Hello to anyone reading this; thanks for being here.

I’m a 35-year-old, permanently (at least as far as I know) single woman. I’m not complaining about that — singleness has its pros as well as cons! But….

As this article notes, single people face some particular issues when it comes to cash flow, housing costs, and retirement savings. (See also this post by Krystal Yee, which got me thinking about this topic a lot.) Those things are definitely on my mind right now. And what with singleness being one of the key factors in my financial life right now, I figured I’d make it the title of this blog, which I’m starting after a couple of weeks of fairly intensive reading around in the personal finance blogosphere. It seems like a really good way to keep myself motivated as I move forward; I like the thought of sharing my journey, which in some ways is well underway and in some ways is just beginning.

Here’s the big-picture snapshot of my financial situation, which shows you both “well underway” and also “just beginning”:

That’s my net worth, starting in June 2013, when I was (thanks, mint.com, for the precision) $21,249 in debt, of which nearly $19,000 was embedded in student loans that were about to begin coming due. I also had $5629 of “assets” (the little green bar) but since $3500 of that is the value of my car, we were really talking…not that much. But counting the car, that brought my net worth in at negative $15,619.

June 2013 was a big month for me; I graduated from a humanities PhD program, located in a Giant Expensive City, and moved to a much smaller, much cheaper city to take a fortunately very well-paid, by humanities PhD standards, but unfortunately only 1-year, job. The move was expensive, since it required buying a fair amount of furniture (long story), but nevertheless, as the summer and fall went on, I started throwing chunks of money at the student debt pretty regularly. So I’ve arrived at the end of March, 2014, with $7703 in debt and a net worth of negative $1034 (still including the car!) The student loan stands at $7558. In other words, I’ve paid over $11,000 on the student loan in nine months. By putting basically all my extra income towards it over the next few months, I hope to have it entirely paid off by August.

This is great, and I’m glad I’ve been able to tackle the loan to this extent, but it still leaves me with a lot of question marks about my financial future, which I’ll tackle in my next post.

[Edit, December 15, 2014: Shortly after beginning this blog, I removed the “value” of my car from my net worth numbers, on the grounds that there’s really no sense in which it’s liquid; this is why elsewhere on the site you’ll see my “starting” net worth, in June 2013, listed at -$19119, and all subsequent net worth updates don’t include the value of my car. I decided to leave this introductory post as is, though, because of the screenshot! The debt numbers in it are accurate, but the assets are too high.]