Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).
This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.
Laura recently received a raise, the combined household income for Laura and Leon is more than $125,000 a year. They want to tackle their student debt, and perhaps start a family soon. They hope to pay better attention to their finances in order get on track for a comfortable retirement, and to ensure that they are in a good position when they decide to have children. (Read last month’s update.)
After reading Laura and Leon’s comments, you can read commentary from Roger Wohlner, CFP. Roger Wohlner appears courtesy of The Chicago Financial Planner. This month, there is a focus on changes to income.
Laura and Leon’s Net Worth Statement
Laura and Leon’s Income Statement
Comments and analysis from Laura
My numbers for this month presented a different kind of puzzle. I couldn’t understand how our Net Income after expenses could be so low (only $676), and yet our total net worth increased by over $4,000. I was finally able to break down my net worth increase thusly:
- $676: income that was earned but not spent on goods;
- $1,906: reduction of interest and principal on loans;
- $887: money taken out of our paychecks and put directly into 401(k)s and HSA checking; and
- $573: increases in the stock market.
When I look at these numbers, everything makes much more sense.
Financially, this was a fairly boring month. I took a trip to the East Coast to visit family, planned two more trips for college graduations, and my husband opted to switch his cell phone provider.
The East Coast trip is notable in that I was able to keep costs low by overlapping some costs with a business trip. My employer paid for the plane tickets to and from the East Coast and a rental car. I only had to pay for the rental car and gas on the days I wasn’t working. However, since it was part of a special corporate rate, my costs were minimal. Overall, it was a great use of time and money.
The next two trips planned are for college graduations in the month of May. One of the trips will overlap with a business trip and have minimal costs while the other required us to buy plane tickets which we purchased in April. The plane tickets seemed expensive but I think a better number is how much we averaged over the past few months per person per day on these trips; I suspect the final number will be fairly reasonable. I’ll calculate this and report it in my analysis next month.
My husband’s new cell phone is from Republic Wireless. I’ve been a customer with them since June 2013, getting unlimited talk, text, and data for about $21 per month. At the time, Leon was largely unimpressed with the selection of phones available, so it wasn’t worth it to him to break his AT&T contract. Now his contract is up and Republic’s phone and service selection has greatly improved. He purchased their top Motorola model for $332 and will be on their new $25 plus tax per month plan. As a bonus, since I provided a reference link, each of us will get $20 credit toward our accounts. This switch will easily save us hundreds of dollars over the course of a year.
One or both of us losing a job is one of the “what if” scenarios I occasionally play through in my head. In such a situation, I would resort to the following steps in order as needed:
- Reduce or eliminate discretionary spending.
- Minimize all long-term savings and loan payments.
- Reimburse ourselves with cash from our HSA account.
- Put expenses on a 0% interest credit card.
- Cash out some of the principal from our Roth IRAs.
As long as the crisis was no longer than about a year, we could definitely come out the other side with minimal impact to our long-term goals.
If we were to go from a two-income to one-income-with-children family, that would be a lot trickier to plot. As Luke pointed out last month, there are significant personal and financial advantages to staying a two-income household. Then again, I’ve had plenty of people tell me how they couldn’t bear to return to work after starting a family. Which kind of couple are we? I really don’t know. How much would our expenses increase? I can only get the vaguest averages from internet searches. Most likely, we would employ some sort of plan similar to the one above until things stabilize and we agree on a viable long-term plan. The most important thing we’re doing is staying open to any and all possibilities, whether that means working, downsizing, finding new support networks, or whatever.
Feedback from Roger Wohlner, CFP
Boring is good and I applaud your attention to your monthly spending. This detail orientation is a good thing that will benefit you throughout your life.
I would, however, like to see you focus a bit more on an overall financial plan and I strongly recommend that you and your husband invest the time and money to sit down with a local fee-only financial planner in your area. You have a lot of valid concerns and questions that go far beyond the scope of a monthly series of articles such as this. I would be happy to help you find someone in your area but suggest you start at napfa.org and/or with the Garret Planning Network.
Feedback from Luke Landes
Republic Wireless sounds like it offers a significant cost savings when compared with the more widely-known carriers. The caveat seems to be that Republic wants you to use data over WiFi as much as possible, and their legal documents indicate they can charge you $500 if they decide that you’re using too much data over cell (3G or 4G/LTE). So if you don’t use too much data while away from home or from public WiFi, you’ll be fine with this plan. On the other hand, I probably wouldn’t, because I often use data over cell. Well, I’d have to change my behavior, anyway.
You’ve given some thought about what to do if you lost part of your income. It’s a solid plan. A credit card with a 0% interest rate for purchases can be a troublesome part of the plan. Sometimes, you apply for a 0% APR card and banks offer a different card instead, and you’re taking a gamble. While the issuer can’t charge interest retroactively if you don’t pay off your balance within the introductory period, they can increase the rate significantly. And you’ll still need to make minimum payments while your income is down, or else you could lose the introductory rate and pay high fees and interest penalties.
In fact, in terms of priority, I might put the Roth IRA withdrawal above the credit card because you can replenish the balance if your income goes back up within the year without any penalty other than perhaps a missed opportunity to be invested during that time. It’s less risky than taking on debt. But this is just nit-picking, and probably a matter of preference. I think the plan is solid.
Your numbers look fantastic. I see you were alarmed at April’s net income amount, but even if you didn’t have those contributing factors, you’re still making excellent progress — almost $12,000 in net income for the year and it’s just been four months.