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.
Calvin is in his early 40s, earning a salary of $120,000 plus bonus as an IT project manager in New Jersey. He has recently finalized a divorce and has a teenage child. Read his bio here. Calvin is on Team Sara, with Certified Financial Planner Sara Stanich.
The net worth report below and following commentary refer to the last full month, February 2013. Last month’s report analyzed Calvin’s progress during the month of January. Continue reading this article to see the net worth report and Calvin’s own analysis, which are followed by Sara’s feedback and advice.
Sara Stanich, CFP appears courtesy of Stanich Group and Cultivating Wealth.
Analysis from Calvin
February was a hard month financially. I knew that it was going to be since I was still adjusting to the change in my pay frequency and I was down to the last part of my savings which I use to bridge my monthly short fall each month.
The good news is that I was able to make it through February; the bad news was I ended up having to put some expenses onto my American Express Card, essentially pushing those expenses into March. Basically, I used my AmEx for groceries and gas for most of February.
There is also a large fluctuation in my bank account balances which is the product mostly of the timing of my updates. For the past few updates, I send my numbers in at the end of the month, about the 29th of the month. My bank accounts at that point are inflated because my rent and alimony are due at the beginning of the next month. It may look like I have $5,000 in the bank when actually it is all committed for expenses.
This month I did my update early in March so those amounts had already been taken out of my checking account. Maybe it would be more accurate if I didn’t include my checking account balances in the update.
I did have some good financial news in February: It looks like I am going to get a decent amount of money back from my taxes, both state and federal. This was money that I was not previously counting on. When it arrives I will most likely put it into my savings account and use it to bridge my monthly shortfall while I continue to look for ways to lower my monthly expenses.
I haven’t made any real progress this month in lowering my expenses but I did notify my landlord that I will be moving out at the end of May. It’s still too early to look for a new place but I am fairly confident that I can find a place and save about $300 a month over what I am paying currently. I also am still planning on making a switch with my car to reduce another potential $300. I am waiting for the weather to break so I can have my car cleaned up, take some pictures, and list it for sale. I will try to sell it private-party for about a month, and if I don’t have any luck I will go to the dealer and trade it in for a used car.
I had some medical problems this month and it required some surgery. I am expecting this will cost a few thousand dollars out of my pocket. I have not seen these bills yet. I have some money in my Health Care Spending Account that I can use to pay this, but I just have wait for the dust to clear and see how bad the damage is.
March should be a good month for me financially. I am expecting my annual bonus and pay increase. I am not expecting a large increase but any amount will help close my monthly shortfall. My bonus will be put away to help cover monthly expenses. My goal is that next year’s bonus can be put towards debt to help me out the hole I am currently trying to dig out of. I may also get some additional restricted stock as long term incentive from work but that will depend on how my review goes.
Feedback from Sara Stanich, CFP
I’m sorry you had a tough month in February. I’m glad you explained the reason for the big drop in cash –- I definitely noticed that right away!
You are moving forward on the changes to your larger monthly expenses. In the next few months, you’ll be changing your apartment and car which save you about $600 a month. That will be huge for you. I know it won’t be easy, but I expect it will be worth it.
Try to get out of the habit of using your AmEx for daily expenses. Here is a challenge (if, as they say, you choose to accept it):
Commit to using cash only for your daily expenses for 30 days. I’m talking about groceries, lunch at work, even gas. Take out your budgeted amount of the green stuff each week; don’t use debit. I know it is less convenient (and you don’t get any points), but it’s temporary and I am willing to bet that it will make you more aware of your spending. At the end of the month, compare how much you spent vs. a typical month. If there are opportunities to save, you are more likely to find them using cash.
It sounds like a lot of positive things are happening financially in March. Good luck, Calvin!
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Updated June 22, 2016 and originally published March 26, 2013.
{ 7 comments… read them below or add one }
Although my wife sometimes says I’m a bit anal about the bookkeeping here’s the key: consistency! Whether you report before or after the end of the month, in order to clearly see which way you’re headed you should do it the same each month. I wouldn’t drop any accounts as that would muddy the waters and restrict the ability of our experts to provided viable advice. You might even consider listing your HSA as an asset because it will be used to offset the recent expenses. Monthly set-backs can’t be avoided, but by following the plan you have I think you’re headed in the right direction.
If the bill is a legal requirement like alimony or child support, I’d keep the cash balance for checking in my calculations, but add a monthly liability that represents if it’s been paid for the month or not. That should even out the flow – because really your net worth had a much smaller change than these numbers indicate since in the months prior that money was legally obligated to go elsewhere anyhow.
I believe the alimony would be an expense rather than a liability since there is no asset tied to it and the value can’t be easily determined. It belongs in the budget and Income Statement but not on the balance sheet unless you’re using some form of accrual based accounting. I’m not sure how you would determine the total obligation of alimony since there may be conditions tied to it that would change the obligation. It would be like me trying to show my pension as an asset and trying to determine what its value is over time. My pension and his alimony should both be accounted for as an income and expense respectively. I’m not criticizing your comment, I just feel listing it as a liability could further confuse any analysis of the net worth statement month to month.
I guess I look at alimony as a legal liability. I don’t know the terms of the divorce, obviously, but it seems that as long as he earns money, a significant portion of that is not his to keep – legally. Presumably if he lost his job, his alimony obligations would lessen or disappear. That’s what I mean by it being a legal liability.
Personally if I were in that situation, I’d never want to book the alimony money as income – since it’s not mine at all, but since he seems to be, I would create some way to mark that it’s just a temporary holding account and that the funds actually belong to someone else.
But that’s mostly because I would want to normalize the measurements so they are all apples-to-apples comparisons. To each their own.
If you can use some of your tax refund/bonus for this, I think you’ll have so much breathing room: Try getting a month ahead of your expenses. It’s something that’s been talked about on some of the other posts here, but I think from a cashflow perspective it’s awesome.
So however much your monthly obligations are (and YAY for reducing them soon!!), sock that away in a savings account linked to your checking. On the first of the month, transfer that money and proceed as normal. When you get paid during that current month, the paychecks go to that savings account, waiting for the following month.
And so on.
Can you explain why the Asset value of the Honda is fluctuating higher each month? A car is a depreciating asset..and the asset value is not impacted by monthly loan payments. I would imagine you could simply maintain a static number and update once or twice a year.
I’m curious too- how is the car value increasing? blue book value fluctuations from month-to-month? I’m confused.