Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.
LastDollar is thirty-three years old, an entrepreneur and single mom with two children with learning differences in private school. To learn more about LastDollar, read the bio published last month in advance of Naked With Cash. LastDollar is on Team Neal, with Certified Financial Planner Neal Frankle.
LastDollar’s update this month includes her net worth as of the end of April as well as her own commentary and analysis. This is followed by feedback from Neal Frankle, CFP, as well as from budgeting expert Jacob Wade from iHeartBudgets.
Last month’s update described LastDollar’s financial progress throughout March.
Keep reading for this month’s details.
Comments and analysis from LastDollar
Things weren’t as bad as I thought they were going to be in April. I managed to pay off two small credit cards. I also paid off my back balance on my electric bill (not seen on the balance sheet), finished paying for tuition for the 2012-2013 school year, and everything except the oil company has gotten a payment of some sort. So, despite feeling like I’m constantly struggling financially, progress is being made even if it is in baby steps.
I’m trying to be patient and recognize how well I’m actually doing in the big picture. Considering what I pay out each month and the fact that my kids are fully clothed, sheltered, healthfully fed, go to a great school and I haven’t lost anything to foreclosure or repossession! Sometimes I look at my expenses and I wonder how it happens, but sure enough, it does.
In May, I’d like to pay just the minimums on the credit cards I still have and start making a dent with my oil balance. Ideally, between now and November (when we really need to have heat) I’d like to have a bit of a credit balance built up because the oil is such a huge expense in the winter months. Yes, I’m supposed to be on a budget plan but as I mentioned in the past I can’t really predict when I will have a higher income month, so it doesn’t always work out that I can send the budget amount each month.
To increase income, I am quoting all new clients at higher rates than I have in the past. I definitely think there is room to increase rates. I don’t plan to increase rates on existing clients at this time, but that may be something to think about in the near future. There isn’t any way for me to get a part time job to increase income. I tried it and it ends up costing me money because I need to pay a babysitter and have commuting expenses that I don’t have when I’m working from home. So the only real way to bring in more money is to charge my clients more or work longer hours. Since I’m already averaging 12 to 15 hour days, working longer isn’t realistic either.
I got my taxes back from the accountant and discovered I owe $4,800 in Federal taxes. I’ll add that to the $2,000 I still owe from the previous year. I do have a plan in place now to pay these off and hopefully not get slammed with another high tax bill for 2013. I’m going to start taking $600 a month from one of my higher paying, recurring monthly clients and just immediately send it to the IRS before I consider what to pay with that client’s payment each month. I won’t allow myself to think what other bill is due more immediately or try to rationalize a better use for that money, I will just pay it and be done with it.
I’ve also started transferring 15% of all incoming money to a holding account. This seems so basic, but when you’re counting every penny, it is extremely difficult to set aside money that could be used to pay a bill that is due right now in favor of saving toward next year’s taxes. But I know it has to be done.
I’m also starting to think about summer now. My kids get out of school on June 12 and don’t go back until September 5. This means they are home 24 hours a day, 7 days a week, 6 days if they happen to visit their dad one day on the weekend. I can work when they are home, but it is not as productive as when they are at school. It’s a daily challenge because they get bored so easily, which leads to fighting, and they can’t do very much for themselves yet. And it’s summer, so I don’t want them to spend the entire 12 weeks sitting around the house while I work.
Summer camps are too expensive; they average about $350 a week per kid, and aren’t even full days. I think I will buy one of those big blow up pools from Intex, at about $350, so they can swim and play a few hours every day and I can work nearby (outside with them). That should buy me a couple hours a day work time, I think, for the whole summer, rather than spending double that for one week of summer camp.
So, that is where I am as we start the month of May!
Feedback from Neal Frankle, CFP
I am glad things turned out better for you than you anticipated in April. Great work paying off those two credit cards and the back balance of your utility bill. Also, you kept the magic happening by paying of the tuition and the other bills. That is really something to be proud of if you ask me. You are right, this is important progress, and I love that you acknowledge it.
I like your plan regarding the oil account. It sounds solid to me.
I can’t say if increasing rates is a good way to grow your business. How do you compare with your competition on rates? Service? Quality? How do new clients get to you? Are they price sensitive? I think you are smart enough to try this out and see if this helps you grow your business or not. Keep us posted on that. (And by the way, our pool guy just asked for an increase. He’s been servicing our pool for 15 years. I have no problem paying the higher rates since he’s demonstrated great service. You might want to rethink your idea about rates on existing clients. They might be OK with paying more.)
On the taxes, that must have been quite a shock. I like your plan to take $600 a month and send it to the IRS. I also love the action you are taking to set aside money for withholding of sorts. That’s very good and very smart. I like your solution. I realize how difficult that must be.
The pool idea also seems like a clever investment too.
All in all, I think you are doing the best and you are making important progress. The only idea I have for you this month is to seek out a mentor who really knows you. He or she has more insight about you than we do. This can be super helpful because that person might come up with other ideas that we aren’t seeing. Do you know someone who could serve this role for you?
Feedback from Jacob Wade
Thank you for sharing, it sounds like you’re juggling quite a bit. Even more when summer time kicks in for the little ones. You are making progress, even if it doesn’t feel like it. I think putting away 15% of your income in a buffer for the months when you have lower income or more expenses is a great idea. I always advise that when you have variable income, so you don’t end up getting further in debt due to a slow month.
As for the IRS, have you set up an installment plan for payments? I think it’s great to send the $600 to them when you can, but you will be assessing penalties and interest all along the way, which really add up quickly. If you put together a payment plan with them, they will stop the penalties, and our tax firm has even had luck holding off the accrued interest as well. You can check out the online application form, but I also recommend getting a hold of a CPA or EA tax professional to take a look at your situation to advise.