Saturday, January 26, 2019

Post Government Shutdown Budgeting

Thankfully, I was not personally affected by the recent government shutdown, but like most people, I was avidly following the news stories about the affected workers struggles to pay basic living expenses after missing more than one paycheck.  If nothing else good comes from this, at least its (possibly) created a bit of a dialogue about personal finance and forced people to examine their saving and spending.  At least, that's what it did for me.

I'm a saver, and always have been.  But when I looked at my accounts and tried to calculate how many months we could last if both of us lost our income, it was surprising.  We live in a very expensive city, and have been primarily focused on reducing debt (which is a good thing!) for the past year or so.  What that means, however, is that our rate of savings has slowed a bit, which is alarming.

By my calculations, it should cost us $3000/month to cover our basic costs.  This includes:

  1. Rent ($2300)
  2. Electricity (~$120)
  3. Gas bill (home $50)
  4. Food (~$250)
  5. Household (things like toilet paper, etc. $50)
  6. Phones ($100)
  7. Misc-- ($100) Things like home internet, Netflix/Hulu.  This is an area that we could cut if things get desperate, but there's always hidden costs with doing that as well.  For example, we could cut home internet since we're lucky enough to have a great public library less than a mile away that's open 12 hours a day.  But, reinstalling internet comes with additional fees.  Also, if we were aggressively trying to find new jobs, it would be inconvenient to have to camp out at the library all day, though I recognize that plenty of people do that.
Thankfully, both our cars are paid off, and if we weren't driving to work every day, we'd save about $200/month on gas.  Our car insurance bill is due 2/15 though, so that's a $900 expense that's unavoidable and would really pummel our savings.  Probably my first impulse, if we were in a lost income situation, would be to put that on a credit card to try to buy some time.  I imagine that's what a lot of people had to do.

Because we have a chest freezer, and I have a tendency (compulsion?) to stock up on food when it's on sale, we could probably go more than a month buying very minimal groceries. That number in my calculations is our average food budget. In fact, I'm going to do a pantry challenge in February and March to try to eat down some of my stores of food before we go on an extended vacation in April.

Student loan payments are a bit tricky.  I'm on the Public Service Loan Forgiveness plan (assuming it still exists when my time finally comes), which means that I pay a prescribed amount of money every month, and I can't deviate from it.  I could put my loans into forebearance, if I was really hard up, but my interest rates are so high that that would really cost me a lot of extra money and time down the road, so it's not a very appealing option.  My student loan payment is $440/month, which is almost double our monthly food budget.  It seems incredibly backward to be mulling over whether I would pay my student loans or buy food, but that's a real problem facing plenty of people.

Over all, we're certainly in a better position than many, but not a comfortable position by any stretch.  I've been trying to build up our emergency fund, and doing this audit is making me realize that that needs to be more of a priority.

Where to save:
I have several Capital One online bank accounts, and I LOVE them.  Their accounts are fee free, and have the best rates I've found.  The traditional savings account has a 1% interest rate, which means that we're earning somewhere around $6/month on our current balance of $8600.  That's not amazing, but it's still quite good.  I'll take free money wherever I can get it.  
Their Money Market savings account, which requires a minimum balance of $10,000 has a rate of 2% interest at the time of this writing.  Compare that to my bricks and mortar bank, which has an interest rate of .02%, and earns me about $.20 per year, this is a no-brainer.

Our plan is to keep about $15,000 in a Money Market account so that we have easy access to liquid cash, should we need it.  At the current 2% interest rate, that will earn us about $25 per month in interest. Above and beyond that, I've got my eye on some of Capital One's CDs, that currently have a rate of 2.85% for the three year.  That's a ways down the road, but I want to have a plan in mind for when that day comes!  Plus, it's pretty fun to shop for low stakes investments, and makes me feel very virtuous.

We're going to be feeling the fallout from the government shutdown for a long time, but I really encourage people to take this is a wake-up call to really examine your finances and make a plan.  It's cold outside, and a good time to hunker down with your bank balance.

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