Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis, and February is “insurance month.” I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.
Calvin is in his early 40s, earning a salary of $120,000 plus bonus as an IT project manager in New Jersey. He has just recently finalized a divorce and has a teenage child. Read his bio here. Calvin is on Team Sara, with Certified Financial Planner Sara Stanich.
Last month’s report charted Calvin’s progress throughout 2012. Keep reading to see Calvin’s latest update, the first of 2013, with progress over the past couple of months. Following Calvin’s own self-analysis, Sara Stanich will offer thoughts from her perspective, and budgeting expert Jacob Wade from iHeartBudgets will also provide insight.
Analysis from Calvin
In January I feel like I did pretty good sticking to my budget. I did go over by about $300 which was mostly in Groceries, Pocket Money and $70 for a car repair I had not anticipated. I think this was good because I did have some adjustments I needed to make.
First, my take-home pay was reduced in January because of Social Security tax kicking back in along with the extra 2% that Congress had been giving us as a stimulus for the past two years. In addition to that, I was surprised when trying to adjust to my new bi-weekly take-home pay. I had been getting paid monthly but the company has now moved to every two weeks. I thought this was going to be a one-time cash inflow but it turns out that it actually lowers my monthly salary. I am now getting one-thirteenth of my annual salary each month instead of one-twelfth.
I know that I will get an extra check in two months which will smooth that out, but the first one is not until May. It was just a surprise short-fall for me this month.
February is fixing to be another very tight month. My savings are almost depleted and I may have an actual shortfall of cash this month that I may not be able to bridge. If that’s the case then a bill or two will have to go past due until March when I get my annual bonus and will be able to replenish my savings. My net worth seemed to improve this month mostly because of good performance on my 401(k) and stock options, so I am sure that is going to fluctuate month to month.
On a more positive front I have begun to take some of the feedback from the CFP seriously. At first when Sara suggested that I make drastic moves to cut my expenses I thought my expenses are already so low, there aren’t any realistic places to cut. It did get me thinking and making some plans.
One thing I did do was to call the IRS to lower my monthly payment for my 2011 tax bill. I know it will take me longer to pay off but right now my first priority is to get my income and expenses to balance month to month. I am putting together a plan to reduce my transportation expenses by selling my 2011 CRV and buying a used car with high mileage but better fuel economy. I am just going to wait until the weather here improves a little and start listing my car for sale.
I am also letting friends and family know that I am looking for a reliable used car with good fuel economy. I have also decided that I am going to have to move when my lease is up in May. Each of these changes should save me $300 a month which will go a long way to closing my shortfall each month. I have a few other ideas for things that will make smaller improvements.
The important thing for me is that I feel as though this Naked With Cash program has already gotten me to think more creatively and has caused good energy to begin flowing. My goal now is to have my expenses and my income be in balance by the end of 2013. Once I accomplish that goal I will be able to use next year’s bonus in a better way, either to pay down debt or to start an emergency fund either of which will be a dramatic improvement over using it to make up my monthly short fall.
This month’s topic of insurance is something that I need to address but have not taken the time or money to do so correctly. I currently have life insurance provided my my employer. It comes to about $1 million. This is all of the life insurance that I have currently, and it’s enough to meet my obligation for insurance as defined in my divorce agreement.
I would like to have a supplemental policy for my daughter, but at this point its an added expense I can’t afford. I do carry renter’s insurance on my apartment and all of its contents. This is required as part of my lease and costs me about $100 a year. My auto insurance is through Allstate and I regularly look around for a better deal but so far have not been able to find one. I pay about $1,200 a year for full coverage on my 2011 CRV.
Feedback from Sara
It sounds like you have made some positive changes, and more are in the works which will dramatically improve your cash flow in the coming months. I am especially glad you are looking at trading the car, which I definitely see as a drain for you.
Stick with it. It can be really frustrating to make changes and still be negative on cash flow for the month, but you are moving in the right direction. I liked what you said about next year’s bonus being a real bonus –- that’s the way it should be.
Your car insurance and renter’s insurance sound reasonable, and your car insurance should go down with a different vehicle later this year.
Your life insurance of $1 million through your employer sounds unusually high. Group life insurance through your employer is usually equal to or double your salary. Perhaps you had an opportunity to buy extra or your company provides some extra benefit for key employees, but I would check to confirm this. (What is the death benefit, annual or monthly premium, and the term?)
You didn’t mention health insurance, but you may want to consider a tax-advantaged account to put aside funds for medical expenses for you and your daughter. Based on your medical debt, you’ve been unprepared for medical expenses in the past. Assuming you stay at your existing company, you will be able to make changes to your plan during the next open enrollment period, which is usually in November.
Feedback from Jacob
Calvin, very glad to hear that you have started making changes and putting plans together to net yourself some more cash each month. Sara was right on the money saying that your priority should be to cut expenses as much as possible to get right-side up so you can start tackling your debts.
It sounds like you have a budget put together, do you mind sharing the details with us, or you can even email me directly if you want. I’d love to see where the cash is going, and offer any pointers. It sounds like some of the overspending is coming from your grocery category, which is definitely one of the toughest ones to pin down. Do you plan your meals out ahead of time, brown bag your lunch, etc.? There are a TON of ways to cut the grocery budget down, and can save you $100 or more per month.
Making the decision to sell your car has to be tough, but you will be better for it in the long run. I’m of the opinion that you never need to buy a new car again, and you can enjoy reliable used vehicles for life.
I didn’t see anything related to health insurance, but I would look into that if provided by work. Based on your medical debt, this is something that would be very valuable to have, even if it cuts into your monthly cash flow. Sounds like the life insurance is required (re: divorce decree?), otherwise I would say it is a bit high. Also, are you paying extra for this through your work? Luckily, once you dump the CRV and pick up a sweet-tastic used car, your insurance should go down a little bit.
You are moving in the right direction, just remember that if things seem to get tougher during the month. You’ve got some big decisions and actions ahead, but it is going to help free up the much needed cash to help tackle these debts, one at a time. Thanks again for sharing!
This communication is intended only for the person or entity to which it is addressed. Any taking of any action in reliance upon, this information by persons or entities other than the intended recipient is not recommended. Any information provided is for informational purposes only and does not constitute a recommendation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. Raymond James and Sara Stanich, CFP, are not affiliated with and do not endorse, authorize or sponsor any third party websites, their respective sponsors, or user comments found on this or other sites.
Updated June 22, 2016 and originally published February 22, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.