In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. 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 on Team Neal, with Certified Financial Planner Neal Frankle. Get up-to-date on LastDollars’s progress by reviewing her update from last month.
LastDollar’s own analysis and comments are followed by feedback from Neal Frankle. This month the theme is debt reduction.
Comments and analysis from LastDollar
One month closer to a substantial increase in income, which means I’m one month closer to tackling my debts and establishing an emergency fund. In November, I did secure an additional client that pays weekly, and I used the first two weeks of pay from that client to finish my holiday shopping; the numbers won’t reflect the difference until December’s update.
I used to have the majority of clients paying weekly, but in the past year there was a shift and most are paying once a month. Having a new weekly payer in addition to my once-a-month payers will help balance things out again.
I did pay off the car two months ago, and (knock on wood) it’s not in need of any repairs or maintenance at the moment.
You don’t see this on the assets/debt tracking spreadsheet, but I used the money I normally send to the car payment to help pay off back balances on oil and electric bills. That felt great. Of course, the moment the oil check cleared the bank, the oil truck pulled in the driveway and gave us some more oil. So I’m right back where I started, but we definitely need to keep oil in the tank for New York winters!
You also don’t see on the spreadsheet the school tuition ($755 a month), but that has been paid every month in full and on time. I kind of prioritize the debts and expenses in this order: mortgage, groceries, tuition, insurance, utilities, credit cards and loans.
Luke thought it would be worthwhile to identify things that are beyond my control and things that are in my control in terms of money management. I can do a quick run down of that; it is something I have thought about over the past year. I think since I have done that, and that is the reason I don’t know how to get help or what Neal could suggest other than to increase income to finally start tackling existing debts, establish an emergency fund.
Out of my control: Rent and mortgage prices are about the same, so it wouldn’t make sense to try and sell my house to save on that expense. Plus, every other house in this town has been listed for sale for two or three years with very little actually selling so my house would likely be on the market too long to make a difference with my current situation.
My kids go to a small, alternative private school that can meet their special needs better than the public school. This means I have to pay tuition. I would love to be able to send them to the school that we pay taxes to and save on the tuition. Unfortunately public school was not working for either of my children academically or emotionally.
I only have so many hours to work. I can only charge so much for my services. I can’t get a job outside of the home that will pay as much as or more than what I’m making now. Once I work outside of the home, I run into the need for daycare and commuting expenses, which immediately reduce the money I make from the job to the point it is simply not financially worthwhile. Not to mention, the kids have so many days off from school and if they’re sick or have doctor appointments (which we do weekly) I have to miss work. For some silly reason, companies don’t like to hire people who need to take a day off every week and need every school holiday and all summer off.
In my control: We still live frugally, but we could always live MORE frugally to free up a few more dollars a month. We’ve gone without TV, without any take-out meals ever, eaten the bare minimum in general, hardly left the house to conserve gasoline, kept the heat so low we needed to wear layers in the house, and visited the food pantry a couple times a month.
I don’t know that I’m willing to go THAT frugal again right now, but I think one area of spending that has grown a bit in recent months is our grocery bill; I’m sure I can cut back there again. Might be able to save $50-$75 a month if I pre-planned meals and watched for coupons again. We can also eliminate school-bought lunches to save about $40 a month (except for pizza day!). The kids barely like them and I was just having them buy lunch a few times a month for convenience.
I can start saying no to all requests for donations and fundraisers for other people’s kids or causes. I don’t spend a ton on this sort of thing, it’s $25 here or $50 there, but looking back over the year I see the amount has grown to about $500 a year. I like to do this and be charitable when possible, but I have noticed only a few people ever return that favor and donate to causes I’ve promoted or fundraisers my kids do. So, not to be a Scrooge, but it’s easier to say no the next time people ask when you know they never return that favor, right?
I can get the tax situation under control moving forward by putting that money aside out of every income I receive, no matter what. In the past, I have attempted this but a more immediate need would have me dipping into the tax savings before I sent the money to the IRS. It’s easy to justify that when you’re using the money for heat or electric or car repairs, but Luke’s concern about my tax situation is a good one.
I’m only going to owe more as the income increases, and I need to get this under control. My accountant just has me pay the taxes once a year, but I know I can set it up quarterly, right? Neal, is this an area you can make suggestions on? And for a self-employed individual in New York, what is the actual percentage I should be setting aside for taxes? Sometimes people tell me 15%, sometimes people tell me 40%. I think I end up hurting myself tax-wise because I receive income through the business (I have an LLC with a business partner) and then I also do work on my own, outside of the business, as a sole proprietor. We do this because not all the projects I take on are shared with my business partner work-wise or financially.
Feedback from Neal Frankle, CFP
Congratulations on your new client. How did you land that person? Can you clone that client? How many more can you take on?
Sounds to me like this is your best line of attack right now. Based on the situation you described, it sounds like you don’t really have many places you can save that much money on. That being the case, increasing your revenue is the place to focus.
I was really happy to see that you took Luke’s direction and wrote out a list of the things you have control over and those things you have no control over. I am actually interested to know why you didn’t include “earn more money by bringing on new clients” as something you do have control over.
Maybe you don’t have control over that, and I simply don’t understand, but I’d sure like more clarity on that.
Feedback from Luke Landes
I loved reading the news about the new client who pays weekly. I’m glad you closed that deal, and it will be good to see how the substantial increase in income gives you a little more freedom — if you’re able to use that income for something other than buying gifts for the kids and putting out proverbial fires.
Thanks for outlining your financial expenses that you believe are beyond your control and those that are within your control. When you look at what is within your control, you can see that the choices people make can really make a difference over the long run.
I see you’re limited by hours in the day. If you are getting enough work so that all your time is taken, and if you have to turn down requests because you don’t have time, you are in a great position to raise your prices. You can also start considering outsourcing as you charge more — maybe just some of the menial, easier tasks that take time — and the fee you have to pay for outsourcing can be covered by the highest prices. Most importantly, this frees up time for you to take on more work. All of this should be within your control.
You might want to talk to a tax accountant to get some thoughts on your particular situation. You can take a few approaches to paying your estimated taxes. First, the goal is to avoid penalties. The second priority is to pay enough throughout the year that you don’t have a big tax bill early next year when you file your tax return. You can avoid penalties by taking 110% of your total tax bill last year and paying that amount in four installments throughout the year (on the IRS’s estimated payment schedule).
But considering you still have tax liability from previous years, that will be the first priority, whether you want it to or not. It’s my understanding that the IRS just attributes any payment to your earliest debt. You mentioned people have given you different suggestions for putting aside a percentage of your income. But suggestions don’t matter if you haven’t been doing it. You’ve received some advice — get started whether it’s 15% or 40%. Personally, I estimate around 30%, but my income has been kind of weird these past few years.