This Week in the Miller House: A Long-Term Budget and Managing Finances

Hello Friends,

Welcome to adulthood, where nothing is cheap and the ride isn’t free! That’s the headline that should have been scrolling across my 18th birthday screen 14 years ago. This is my way of saying that I’ve finally buckled down and did what I’ve been putting off for too long…I created a long term budget. Fun stuff, huh?

I’ve always done an annual budget, figuring my income and expenses, knowing how much I have free to have fun on each month, how much savings I can build up over the year and how much goes out the door to the non-monthly expenses, like car insurance and college tuition. When you’re a single mom in a one-income household, you have to watch your finances like a hawk and be as stingy as possible with your spending to keep the household solvent.

Since Hunter was about half as tall as he is now and first discovered his obsession with WWII history, we’ve been talking about a trip to Germany for his high school graduation trip. Of course I have two offspring, and the youngest of my two boys can’t be left with chopped liver upon his graduation, so I decided a trip of equal merit is in store for him, although he has no specific European destinations set in his mind, so the exact location is subject to change.

Over the last several years, I’ve always made it a point to take small trips each year because I thoroughly believe that experiencing people and places outside of the tiny bubble in which we live teaches us things that can’t be learned in a classroom, and broadens our world view. It’s easy to be complacent living the same life day in and day out, but travel shakes that life up a bit and forces us to realize that there is so much going on out there outside of our own selfish existence.

The thing is, travel is expensive. Particularly when you’re paying for three people instead of just yourself. And Hunter’s high school graduation is now coming up in just over five years. But with all of the money spent on getting our home settled and how we want it, and on taking all of these little baby trips over the years, I’ve saved absolutely nothing towards these major trips that are going to cost several times more than our baby trips.

I started looking up vacation packages online to get an idea of how much I will need to save for these trips, and the very sharp realization that I have a lot of saving to do in a short time almost gave me an anxiety attack. By today’s standards, it would cost in the area of $4,000.00 per trip. By 2023 and 2025, I’m figuring I better save about $6,000.00 per trip to be safe. That’s $12,000.00 that I need to save in the next 5-7 years!!!

So I either needed to become a card shark and hit Vegas, or start planning out my budget for a lot more than just 2018. I chose to do an extended budget for 10 years, to get all the way through both of these trips and then establish a new savings system for the long haul. I’ve figured up when my roof and HVAC will be due to be replaced, and then when they’ll need replaced again after that. Just in time for retirement, which means hopefully after I retire there will be no more major upgrades to do.

I’ve thought about the reduction in the amount of tax refunds I’ll get over the years, especially once the kids are grown. I’ve factored in no longer getting child support once they hit 18, yet very possibly are still living at home to go to college should they end up at SEMO. And the “mom I’m broke” calls I’ll undoubtedly get if they don’t live at home during college. I’ve factored in their cars when they turn 16 (sorry kids, but you’re getting jobs to cover your gas and car insurance!), plus an additional cell phone to the one they currently share once Hunter starts driving (you’re in luck kids; mom will still pay for your phones until you graduate college!).

Every stone I spotted I turned over, examined, and kicked around a little for good measure. I budgeted a little high for expenses and low for pay increases, because you’re better off to end up with extra than not enough. At this time next year I’ll have my car paid off and will then start saving my monthly car payment to put towards the down payment on a new car when Hunter starts driving mine. By 2020 I should have exactly my target amount to put down on my Subaru!

Then somehow, just by chance, because had I started this even a few months from now I wouldn’t have gotten this lucky, I will have exactly what I need saved for each of the boys’ graduation trips right exactly at the time we take those trips. What I’ve realized is that I should’ve started doing this at least five years ago. Hell, I should’ve started doing this 9 years ago the moment I became a single mom! But then buying, remodeling, and selling my starter home to get to my perfect permanent family home took most of my extra cash, and I sure don’t regret the trips and experiences I’ve been able to give my kids in their childhood. So I suppose I’m right where I should be after all.

Because I’ve been budgeting and focusing on money and finances, my grandpa’s financial words of wisdom over the years have been resonating with me. Since I was old enough to know what a dollar is, I’ve heard these things on repeat:

Lesson #1

Never, ever carry a credit card balance. Every penny that you spend in interest is a penny wasted. Your money is precious. It determines your standard of living. And if you’re paying money on interest payments for unnecessary debt, you may as well be setting fire to it or putting it down the garbage disposal, because that money goes out the door and brings home absolutely nothing in return. Actually, Grandpa said you may as well be using it to wipe your *** with, but I decided to be a little more PG! If you can’t pay your credit card off in full every month, then don’t use one. And if you do have one that you pay off in full every month, make sure you get one with rewards, because then the credit card company is actually paying you to use their services.

The interest concept also applies to borrowing money. In this day and age it’s unthinkable to be able to buy a car with cash, and you definitely can’t afford to buy a house without a mortgage. But for everything else…save the money first, then buy it. Unless you can finance it interest free (and read the fine print to make sure that you pay it off early if interest does come into play at maturity), then you’re just throwing away extra money on interest payments that you could’ve used for something else.

Lesson #2

Save. Retirement isn’t as far away as it feels, and you can’t depend on the government to take care of you. Social Security is nowhere near enough to cover expenses, and Medicare costs are high. Save your own money, and plenty of it, and in more than one account and diversify your stocks. If you can get a Roth 401(k) or Roth IRA, get one so you’re not paying taxes on it when you draw the money. And invest in companies that pay out dividends each month so you can get income from your investments without having to draw money from the account. The longer you can leave the money in and let it grow, the better.

And never, ever, under any circumstances, touch your retirement account prior to retirement. If you make a withdrawal early you’ll pay a 45% penalty. Remember that interest money I mentioned you may as well burn or send down the garbage disposal? Same thing for an early withdrawal penalty, only to the tune of thousands of dollars at once, completely thrown away. Most retirement plans will allow you to begin drawing on them after a certain number of years or after a certain age, usually after 55, but again, the longer you let them grow, the more money you’ll have once you are retired and have no income from a job any longer.

Lesson #3

Live within your means. Just because you have an extra dollar doesn’t mean you need to spend it. The more you save, the more comfortable you will feel. If you have to stretch and struggle to afford a non-necessity, then reassess whether it’s something you really need, or if it’s just a want that you can live without. We all want things. I want a house on the beach with an Audi in the garage and an endless supply of Manolo Blahnik heels and Kate Spade handbags, but I’m not going to bury myself in credit card debt and go bankrupt trying to get them! If you want something after you’ve put money into savings and allocated funds to your retirement account and you don’t need to borrow money or put it on a credit card to get it, then do it! Otherwise, leave it in the store.

Several times a year for the full span of the 32 years I’ve been alive he has drilled these things into my head, and I’ve listened and haven’t regretted it! It hasn’t always been easy to turn down things I want, but I have zero credit card debt because I pay down my full balance every month. And at least half of the small appliances in my kitchen, cutting boards, knives, watches and jewelry, etc., I’ve acquired from credit card points, but I’ve never paid my credit card company a penny in interest. I put 7% of every pay check into a Roth 401(k) and have a separate Roth IRA that I manage myself. What I don’t have is a lot of savings because, well, I’m a single mom and not exactly a high income earner, and there is no other income in my house.

Sometimes you just don’t make enough to save a lot, but I still save what I can every year after the bills are paid, and now that I have a house that is updated I can save even more because I’m not constantly paying for a remodel. The good thing about home renovations, though, is that you add equity and therefore resale value to your house. My last house I sold for $17,500.00 more than I paid for it only 2.5 years earlier. And I invested every bit of that, after paying the realtor and closing costs, into my new house. You sure can’t beat that!

Now that I’m dangerously close to disclosing way too much personal information about my financial position, it’s time to bring this to a close. I’m feeling the strain of a tight budget and the pressure of needing a whole lot of cash in just a few years, but I have a plan in place that I will adhere to strictly, and I’m completely confident that I’ll get to where I need to be when I need to be there. If anyone has any further advice, or would like some pointers from a new 10-year-budget master, feel free to reach out to me and I’ll impart some wisdom if I can!

Love,
Loren

piggy-bank-with-bills

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