Monthly Archives: August 2014

Temporary parsimony part 2: ways we cut back

During the process of saving for, making an offer on and buying the new home, we have cut back category after category of our spending. And when we move in, especially if we haven’t sold our condo by then, we’ll be cutting even more drastically.

It’s funny — since I do use a budget and slice-and-dice our money up into planned categories, I rarely feel like we have “extra” money. If we do end up with a windfall or surplus beyond what I’ve planned, I always use that money for extra debt repayment or stash it into savings — it doesn’t just sit around.

So there have been many, many points in this home-buying process where an added expense has come up and I’ve put the brakes on, said “That’s it! We don’t have any room in the budget for that.” But then I’ve inevitably found something that can be cut, reduced or kicked down the road to be paid later.

I’ve come to fully realize how many spending categories are discretionary and can be stopped. There are only a few fixed bills; everything else is on the table when it comes to making cutbacks. It just depends on how much we want or need that money for something else. In our case, we want to be in our new home so badly that we’re ready to put just about everything on the table.

Over the course of the past few months, here’s what we’ve cut from our budget and/or savings and in what order:

  • Extra debt repayment
  • Travel/vacation fund
  • New computer fund
  • Charitable contributions
  • Emergency fund (except for some money that’s now earmarked for something else, but could still be used for emergencies)
  • House cleaning service
  • Roth IRA contributions (though I’m budgeting for a big makeup contribution once we’re back on track)
  • Diaper service (including compostable products, pickup and dropoff)
  • DVR service for cable (we couldn’t cut cable entirely because it’s built into our association dues)

That’s what was needed just to purchase the new place and cover a loss on the condo when we sell it, and kick out our tenants and move in once we sell.

Now that we’re planning to move in whether or not we sell the condo, we’ve had to plan more budget cuts:

  • We’re taking out a student loan for tuition on my husband’s last semester at college. We will try not to spend the money we’d saved up to pay for the semester, but that money will be available as a de facto emergency fund in case something comes up such as a medical emergency, large unavoidable expense with the new house, etc.
  • We cut back the money I had planned for buying new winter gear. We’ll make do with what we have and seek out used or cheap replacements for what we can’t do without.
  • We’re cutting personal spending money in half, and we also know the rest of the personal spending money is on the table as a potential future cut if needed.
  • Moving into the new place will actually cut our internet bill in half or even by three-quarters, an unintentional but welcome budget reduction.
  • We’re cutting the budget for birthday presents (early next year) in half.
  • We’re cutting our barbershop budget; some of us will be skipping the barber entirely or going less frequently.

If there are small expenses that crop up, we have a few more places that we can still cut:

  • More of our spending money.
  • Reducing the Xmas gift fund.
  • Netflix (not much of a savings but it’s something).
  • Carshare (we set aside money each month to use Hourcar and Car2Go).
  • CSA (farm share; we get a good amount of bang for our buck so it wouldn’t be a huge savings to buy at the store instead, but it would help some).
  • Reduce the grocery budget (we’re going to try not to spend all of it anyway so that we have more wiggle room).
  • Continue to cut out Roth IRA contributions (right now I have them scheduled to restart in December).

If we have large-scale unavoidable expenses, or don’t bring in our projected income for any reason, these are the ways we’ll have to cover them:

  • Use the money planned for a big Roth IRA catch-up contribution.
  • Use the money planned to pay off the last semester’s tuition, and carry the student loan for awhile instead.
  • Use the money we have earmarked for renovations on our UK property; if used, we’ll have to find money to replace it, or else take out a home equity loan in the UK to fund the renos.
  • Get a 0% interest, no-payments credit card (last last last resort).
  • Loan from family member (very very very last last last resort; would do anything to avoid but know that the option is there).

Now all of the above is just preparing for worst-case scenarios. We also have several positive money possibilities on the horizon:

  • Promotions and/or new job prospects that could bring in more money.
  • Year-end bonus probability.
  • A potential windfall that’s up in the air but not yet out of the picture.
  • Selling the condo sooner than expected or for a smaller loss than we’re predicting.

If any of these happens, we need to be strategic about the money. Smaller amounts of money should be used to make improvements on the new home according to highest priority. A larger windfall would be used to reduce our principal debt so our monthly payments would be smaller and our journey to debt-free shorter.

In the next post, I’ll share ideas I’ve been gathering for ways to save money by buying cheap or doing without. I’ve also been brainstorming lots of free activities to keep me occupied and keep any desire to shop or spend money at bay without feeling bored or deprived.

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Image courtesy of gameanna via FreeDigitalPhotos.net

Temporary parsimony: the prelude

Thank you thesaurus! A great word for thriftiness that I rarely see or think to use.

I’ve been on a bit of a hiatus with this blog, and the main reason is that I typically only blog here when I feel like I’ve figured something out and want to share what I’ve come up with. But basically since March, I haven’t felt at all sure of myself, so I don’t feel I have any valuable insights to impart. My wife has told me several times that I should go ahead and blog in the midst of it; that people would probably be able to still learn from my confusion. But I felt so muddled and insecure that I wasn’t sure where to begin.

Well, I feel we’re moving to a period of more certainty, so I’m ready to start blogging about my financial life again. And it’s a much different financial picture than I had even five months ago!

A number of things have happened since March:

– My wife came back from the London Book Fair with a clarity about her future: She didn’t want to be in publishing in England, and she didn’t want to be in publishing full-time at all anymore.

– We had been in a holding pattern for several years while we waited to see if there was a chance we could move to England or if we should make our permanent home here in the Twin Cities. So once this last possible avenue to the UK was closed off, our path was clear: Stay in Minneapolis.

– We had already been saving for a move/new home regardless, so we planned to keep doing that. But then we got another interesting piece of news that month: A large windfall might be headed my way soon. This would speed up our timeline considerably. (For the record, said windfall has yet to materialize, but it did cause us to take moving more seriously, and probably put us in more of a mindset to buy sooner than we otherwise would have.)

– For a long time we’d had it in the back of our heads that we’d love to get some sort of duplex or multifamily home for our next one. We had a friend in mind who we thought would be a perfect person to live with, and share pets, children and some living expenses with. We happened to bring this up to a couple of other friends, and they leapt on the idea. As our children’s godfathers, we could think of no better match for someone to share our home with.

– We began planning renovations on our current condo to get it in selling condition, and we also decided to check out the multifamily market in our desired neighborhoods to see if it was even feasible — if we could get the amount of space in the right neighborhood for the right price.

– The first day we set out with our real estate agent, the third home we found was eerily perfect for us. And unlike most of the other places we were seeing on the market, let alone what we’d seen that day.

– With some creative wrangling, months of stress,  a loan from our friends and a clear-out of our emergency fund, we were able to purchase said home in late July. The home cost much more than we expected, both in additional debt we took on and in monthly housing costs. This probably deserves its own entry at some point, but for now let’s just say the budget I foresaw when we made the initial offer was much different from the budget we ended up with when all was said and done.

– The duplex, purchased from an investor-type owner, already had tenants in the upper unit. We could kick them out with 45 days’ notice — but then we’d lose income that covered over half the new housing costs. We’d already promised the lower unit to our friends and they’d given notice at their old place, so they needed to be able to move in Sept. 1. We still hadn’t sold our condo, so we thought we should probably stay there and keep the upper unit rented.

– We found out that even if we sold our condo for what we owed on it (doubtful), we’d still end up at a loss because of realtor fees and other selling costs.

– I started to think that even if we did sell our condo, we would struggle with our budget once we kicked the tenants out and lost that income. I cast about for other possible solutions. I came up with two cheaper but much more disruptive options: renting an apartment for a short time, or squeezing with our friends into the small lower unit of the duplex.

– One element kept stressing me out: We had an FHA loan, so not moving in within 60 days and making the duplex our primary home would violate the requirements of the loan.

– Living in a staged condo and chasing after two preschoolers and a cat, trying to maintain a pristine appearance in the face of their natural chaos, was a strain on all of us. As was knowing we had a beautiful new home but not knowing when we’d actually be able to inhabit it.

– A final straw was finding out we need to have a change-of-ownership inspection and renewal of the rental license. The confusion of which unit(s) to get inspected, and figuring out how much of a story we’d have to maintain about not moving into the place despite the FHA rules, was overwhelming.

– We decided to go with the most expensive option of all, one I’d never seriously considered before. We decided to kick the tenants out and move in Oct. 1, regardless of whether we’d sold the condo, and to just carry two mortgages indefinitely if we had to.

– We had to do some wrangling and moving around of expenses, and planned a severely curtailed budget. Then the renters threw an unexpected but somewhat welcome curveball: They said they wanted to move at the end of August instead of the end of September.

– We did some more mental gymnastics and figured out a way we could afford that. It was even tighter, a much tighter budget than we’d had in years, and much much tighter than I thought I’d be comfortable with. But the lure of getting out of our staged condo and into our already beloved new home was greater than any worries about being on a shoestring budget.

– We told the renters they could move out early if they found a place. We’re still waiting to hear if they have, though a glance at Craigslist revealed that there are still lots of places available for a 9/1 move-in. So we think they will.

– That means we need to be completely disciplined, creative and tight-fisted with our money for at least the next five months. That definitely deserves its own entry, so I’ll save the details of what we plan to do for my next post.

onepenny

Image courtesy of James Barker at FreeDigitalPhotos.net